Saiyed Paper Mills Ltd.,, Vapi v. The ACIT., Vapi Circle,, Vapi

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH JM AND SHRI A N PAHUJA A M] ITA NOS.1544 AND 1545/AHD/2007 (ASSESSMENT YEAR:-1993-94) SAIYED PAPER MILLS LTD. PLOT NO.162 PHASE-II GIDC VAPI [PAN: V/S ASSISTANT COMMISSIONER OF INCOME-TAX VAPI CIRCLE VAPI [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR AR REVENUE BY:- SMT. NEETA SHAH DR O R D E R A N PAHUJA: THESE TWO APPEALS BY THE ASSESSEE -ONE AGAINST THE QUANTUM ADDITION AND THE OTHER AGAINST LEVY OF PENA LTY U/S 271(1)(C) OF THE INCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 30-11-20 06 OF THE LD. CIT(APPEALS) VALSAD FOR THE AY 1993-94. 2. ADVERTING FIRST TO THE QUANTUM APPEAL IN ITA NO.1544/AHD/2007 GROUND NO.1 RELATES TO CONFIRMATION OF THE ADDITION OF RS.32 56 138/- MADE BY THE AO U/S 68 OF THE ACT. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.29 68 7 69/- FILED ON 31.12.1993 BY THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING M G KRAFT PAPER WAS TAKEN UP FOR SCR UTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE RECEIVED FOLLOWING AMOUNTS TOWAR DS SHARE CAPITAL AND UNSECURED LOANS FROM VARIOUS PERSONS DETAILED A S UNDER:- --------------------------------------------------- ------------------------- SR. PARTICULARS SHARE UNSECURED TOTAL NO. CAPITAL LOAN --------------------------------------------------- ------------------------- 1 NRIS. 45 50 000 9 80 000 55 30 000 2 ASSESSEES 20 84 500 17 36 700 38 21 2 00 ITA NOS.1544 AND 1545/AHD/2007 2 3 AGRICULTURISTS 1 00 000 6 17 000 7 17 00 0 4 NON-ASSESSEES 17 17 500 24 97 100 42 14 600 ------------- ------------- ------------ 84 52 000 58 30 800 1 42 82 800 ------------- ------------- ------------ TO A QUERY BY THE AO SEEKING LIST OF SHARE-HOLDERS AND SHARE- APPLICATION FORMS THE ASSESSEE SUBMITTED VIDE LETT ER DATED 11-1- 1996 AS UNDER:- OURS IS A PRIVATE LIMITED COMPANY AND MOST OF OUR SHAREHOLDERS ARE RELATIVES AND FRIENDS OF THE PROMOTERS. THEY HAVE A CCORDINGLY NOT MADE ANY APPLICATIONS FOR SHARES AND THEREFORE THE COMPA NY DOES NOT POSSESS ANY APPLICATIONS ON RECORD. 2.1 THE AO FURTHER POINTED OUT THAT THE DETAILS OF LOANS GIVEN BY THE PERSONS WHO ARE ASSESSEES REVEALED THAT THE F OLLOWING PERSONS STATED TO HAVE INVESTED THE AMOUNT MENTIONED AGAINS T THEIR NAMES OUT OF THEIR OWN RESOURCES:- SR. NO. NAME OF THE PERSONS AMOUNT INVESTED OUT OF OWN RESOURCES --------- ------------------------- ------------- ----------- I) SHRI AMIN YASIN SAIYED RS.6 18 900/- II) SHRI SAUKAT AMIN SAIYED RS.5 00 000/- III) SHRI MOHMEDALI A SAIYED RS.3 25 000/- IV) SHRI AYUB Y SAIYED RS. 18 300/- V) SHRI HANIF Y SAIYED RS. 90 000/- THE DETAILS FILED BY THE ASSESSEE FURTHER REVEALED NRI GIFTS OF RS.4 70 000/- RECEIVED IN THE CASE OF SHRI AMIN Y ASIN SAIYED RS.4 00 000/- IN THE CASE OF SHRI SAUKAT AMIN SAIY ED AND RS.2 00 000/- IN THE CASE OF SHRI MOHMEDALI A SAIYE D WERE NOT SUPPORTED BY ANY EVIDENCE. EVEN THE BALANCE AMOUNT STATED TO HAVE BEEN BROUGHT IN BY THESE THREE PERSONS AS ALSO BY T HE OTHER TWO PERSONS IN THEIR OWN ACCOUNT STATED TO BE OUT OF SA VINGS OR LOANS RECEIVED FROM OTHER PERSONS WAS NOT SUPPORTED BY A NY EVIDENCE. THE AO ALSO OBSERVED THAT EVEN WHEN THE ASSESSEE W AS ASKED TO PRODUCE JUST ONE SHRI AMIN YASIN SAIYED OUT OF THE AFORESAID FIVE PERSONS FOR CROSS VERIFICATION HE WAS NOT PRODUCE D & HENCE NO ITA NOS.1544 AND 1545/AHD/2007 3 VERIFICATION COULD BE MADE. IN THE ABSENCE OF ANY E VIDENCE IN SUPPORT OF THE ALLEGED SAVINGS AND LOANS RECEIVED F ROM OTHER PERSONS THE AO ADDED THE FOLLOWING AMOUNTS U/S 68 OF THE ACT:- SR. NO. NAME OF THE PERSONS AMOUNT OUT OF OWN ACCOUNT N R I SELF INVESTMENT OUT OF SAVINGS ETC. I) SHRI AMIN YASIN SAIYED 6 18 900 5 00 000 1 18 900 II) SHRI SAUKAT AMIN SAIYED 5 00 000 4 00 000 1 00 000 III) SHRI MOHMEDALI A SAIYED 3 25 000 2 00 000 1 25 000 IV) SHRI AYUB Y SAIYED 18 300 - 18 300 V) SHRI HANIF Y SAIYED 90 000 -------------- - ---------------- 90 000 ------------- 15 52 200 = 11 00 000 + 4 52 200 2.2 AS REGARDS FOLLOWING AMOUNTS STATED TO HAV E BEEN BROUGHT IN BY AGRICULTURALISTS SR. NO. NAME OF PERSON SHARE CAPITAL LOANS TOTAL SOURCES (OWN FUNDS) 1 MR.YASIN HUSSAIN SAIYED 1 00 000 1 25 000 225000 AGRI. INCOME 2 MR. SHARIF JAMAL NIL 2 00 000 200000 3 MR. YUNUS SHARIF NIL 1 39 000 139000 4 MR. THAKURBHAI NIL 44 000 44000 5 MR. AYUB MOHMEDHUSAIN NIL 69 000 69000 6 MR. AMIN SADIQ QURESHI NIL 40 000 40000 1 00 000 + 6 17 000 = 717000 THOUGH THE ASSESSEE SUBMITTED CONFIRMATORY LETTERS OF THE AFORESAID PERSONS NO EVIDENCE WAS FURNISHED REGARDING THE SO URCES OF THESE INVESTMENTS OR EVEN OF ANY AGRICULTURAL INCOME. EVE N WHEN THE ASSESSEE WAS ASKED TO PRODUCE MR. YASIN HUSSAIN SAI YED AND SHRI YUNUS SHARIF FOR CROSS VERIFICATION THEY WERE NOT PRODUCED NOR ANY SUPPORTING EVIDENCE WAS FILED TO ESTABLISH THE GENU INENESS OF THE ITA NOS.1544 AND 1545/AHD/2007 4 CREDITS OR THE CREDITWORTHINESS OF THESE PERSONS. A CCORDINGLY THE INVESTMENT IN SHARE CAPITAL AND LOANS FROM THESE PE RSONS WERE NOT ACCEPTED AS GENUINE AND ADDED U/S 68 OF THE ACT. 2.3 REGARDING INVESTMENT BY NON-ASSESSEES THE AO ASKED THE ASSESSEE TO PRODUCE THE FOLLOWING PERSONS FOR CROSS VERIFICATION:- 1) SHRI AMIN YASIN SAIYED 2) SHRI KHALIK A SAIYED 3) SHRI AYUB A SAIYED 4) SHRI SALIM YASIN SAIYED 5) SHRI YASIN H SAIYED 6) SHRI HANIF SAIYED 7) SHRI V PRABHAKARAN 8) P A HOLDER OF SHRI ABDUL TANVER 9) SHRI MOHMED SAFI BELHASA 10)SHRI SOLANKI ISHAQUE YASIN 11)SHRI JAHID SALIM SAIYED 12)SMT. RUKAIYA AYUB SAIYED 13)SHRI YUNUS SARIF 14)SHRI LIYAKAT AMIN SAIYED 15)SHRI KHALIQ RAFIQ SAIYED 16)SMT. HAMIDA SALIM SAIYED 2.31 HOWEVER THE ASSESSEE PRODUCED ONLY THE FOLLO WING THREE PERSONS:- 1) SHRI MANIF YASIN SAIYED. 2) SHRI LIYAKAT AMIN SAIYED. 3) SHRI AYUB YASIN SAIYED. EVEN THESE THREE PERSONS DID NOT PRODUCE ANY EVIDE NCE IN SUPPORT OF THE INVESTMENT MADE BY THEM EITHER IN THE FORM OF SHARE CAPITAL OR LOANS TO THE ASSESSEE COMPANY NOR THEY WERE AWARE OF THE TERMS AND CONDITIONS OF THE LOAN GIVEN TO THE ASSESSEA-COMPANY. IN VIEW OF THESE FAC TS THE CREDITS IN THE NAME OF THOSE PERSONS WERE NOT ACCEPTED AS GENUINE. AS REGA RDS THE REMAINING PERSONS DESPITE SUFFICIENT OPPORTUNITY ALLOWED TO THE ASSES SEE THEY WERE NOT PRODUCED FOR CROSS VERIFICATION. CONFIRMATORY LETTERS FILED BY T HE ASSESSEE-COMPANY IN RESPECT OF THESE PERSONS COULD ALSO NOT BE VERIFIED. THE AO FURTHER OBSERVED THAT MANY OF ITA NOS.1544 AND 1545/AHD/2007 5 THE CONFIRMATORY LETTERS FILED BY THE ASSESSEE WERE ACCOMPANIED BY WRITTEN NOTES WHICH REVEALED THAT THE INVESTMENTS WERE MADE BY T HESE PERSONS AFTER TAKING LOANS OR GIFTS FROM SOME OTHER PERSONS WHOSE IDENT ITY WAS ALSO NOT ESTABLISHED. THE WRITTEN NOTES WERE STEREOTYPED AND SIGNED BY P ERSONS WHOSE ADDRESS WAS NOT GIVEN NOR ANY OTHER SUPPORTING EVIDENCE TO PROV E THE GENUINENESS OF TRANSACTIONS. THE TERMS AND CONDITIONS ON WHICH LO ANS WERE GIVEN WERE ALSO NOT EXPLAINED IN ANY OF THE SAID NOTES. IN THESE C IRCUMSTANCES THE INVESTMENT OF RS.42 14 688/- MADE BY THESE PERSONS WAS ADDED U/S 68 OF THE ACT. INTER ALIA PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE A LSO INITIATED FOR THE AFORESAID UNEXPLAINED INVESTMENT. 3 ON APPEAL THE LD.CIT(A)VIDE ORDER DATED 03-10-19 96 DELETED THREE ADDITIONS OF RS. 4 52 200 RS. 7 17 000 &RS .42 14 600 INTER ALIA ON THE GROUND THAT THIS WAS FIRST YEAR OF THE BUSINESS OF THE COMPANY. 4 ON APPEAL BY THE REVENUE THE ITAT AHMEDABAD BENC H VIDE THEIR ORDER DATED 04-12-2002 IN ITA NO.5155/AHD/199 6 RESTORED THE MATTER TO THE FILE OF THE AO IN THE FOLLOWING TERMS : 2. AT THE TIME OF HEARING LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT VARIOUS DELETIONS HAVE BEEN MADE BY CIT(A) BY ADMITTING NEW EVIDENCES FOR THE FIRST TIME IN VIOLATION OF PR OVISIONS OF SUB-RULE 3 OF RULES 46A OF THE IT RULES. THE LEARNED AUTHORIZED R EPRESENTATIVE FAIRLY CONCEDED TO THE OBJECTIONS RAISED BY LEARNED DEPART MENTAL REPRESENTATIVE. 3. IN VIEW OF ABOVE SUBMISSION OF THE LEARNED DEPA RTMENTAL REPRESENTATIVE AND CONCESSION BY LEARNED AUTHORIZED REPRESENTATIVE IN THE INTEREST OF JUSTICE WE RESTORE THIS ISSUE TO THE F ILE OF AO WITH THE DIRECTION TO DECIDE THE WHOLE APPEAL AFRESH AFTER PROVIDING O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5 IN PURSUANCE TO THE AFORESAID DIRECTIONS OF THE ITAT THE AO IN THE REVISED ASSESSMENT REDUCED THE ADDITION OF RS. 7 17 000/-BY RS. 44 000 SINCE ONE OF THE DEPOSITOR SHRI THAKORBHAI N PATEL IN HIS STATEMENT ACCEPTED THAT HE HAD INVESTED RS.44 000/- IN THE ASSESSEE-COMPANY FOR PURCHASE OF SHARES. ACCORDINGL Y ADDITION WAS REDUCED TO RS. 6 73 000 THE ASSESSEE HAVING FAILED TO ESTABLISH THE ITA NOS.1544 AND 1545/AHD/2007 6 GENUINENESS OF THE TRANSACTIONS AND THE CREDITWORTH INESS OF THE REMAINING CREDITORS. 5.1 AS REGARDS ADDITION OF RS.42 14 600/- AS MEN TIONED IN PARA V OF THE ASSESSMENT ORDER THE ASSESSEE PRODUCED THE FOLLOWING PERSONS OUT OF 57 FOR EXAMINATION U/S 131 OF THE AC T:- 01. LIYAKAT ALI AMIN SAIYED 225000 10. KHALIL RAFIQ SAIYED 300000 16. AHID HANIF SAIYED 115000 17. JAHID HANIF SAIYED 115000 27. SAIF ALI KHAN 19000 34. VINOD KUMAR 19000 36. N S RANI 19000 42. HASMUKHBHAI B PATEL 19000 45. AMIR KHAYA 19000 46. JAYANTIBHAI M PATEL 25000 53. ABDUL R SHAIKH 19000 54. DINESHBHAI K AHAIR 19000 56. YUSUF SAIYED 19000 57. VASIMBHAI SHAIKH 19550 ------------ 836550 AFTER VERIFICATION THE AO CONCLUDED THAT THE ASSE SSEE PROVED THE GENUINENESS OF SOME OF THE AFORESAID SHARE APPLICAN TS ASSESSED TO TAX WHILE THE OTHERS WHO WERE NOT ASSESSED TO TAX THE ASSESSEE ESTABLISHED THEIR CREDIT WORTHINESS AND MODE OF TRA NSACTIONS. ACCORDINGLY THE AO REDUCED THE ADDITION TO RS.33 7 8 138/- [42 14 600 8 36 550] THE ASSESSEE HAVING FAILED T O ESTABLISH THE GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF SAJID SALIM SAIYED(RS. 3 00 000/-) JAHID HANIF SAIYED(RS.1 15 0 00/-) MEHMOOD AMIN SAIYED (RS.2 10 000/-)& RAMJAN AYUB SAIYED(RS. 1 70 000/-) WHO WERE MINORS AND NOT ASSESSED TO TAX NOR THE ASS ESSEE SUBMITTED ANY EVIDENCE ABOUT SOURCES OF THEIR INCOM E OREVEN IN RESPECT OF THEIR INCOME HAVING BEEN TAXED IN THE H ANDS OF THEIR GUARDIANS. FURTHER ON EXAMINATION OF THE LADIES SM T. SEHWAZ SAUKAT SAIYED(RS.2 17 500/-) SMT. KULSUM MOHEMDALI SAIYED(RS.2 25 000/-) SMT. NOORBANU AMIN SAIYED(RS .2 00 000/- ITA NOS.1544 AND 1545/AHD/2007 7 ) SMT. HAZRA RAFIO SAIYED(RS.1 70 000/-) SMT. NOOR JAHAN AYUB SAIYED(RS.2 10 000/-) SMT. SAFIYA YASIN SAIYED(RS. 2 25 000/-) SMT. HAMIDA SALIM SAIYED(RS.2 00 000/-) MISS FIROS AYUB SAIYED(RS.1 40 000/-) AND SMT. AKLIMA HANIF SAIYED (RS.1 40 000/-) THE AO CONCLUDED THAT THE ASSESSEE COULD NOT ESTAB LISH EITHER GENUINENESS OF THE TRANSACTIONS OR CREDITWORTHINESS OF THESE LADIES. ACCORDINGLY THE AO ADDED RS.17 27 500/- U/S 68 OF THE ACT INTER ALIA ON THE GROUND THESE LADIES DID NOT HAVE ANY SOURCE OF INCOME AND HAD SHOWN DEPOSITS OUT OF LOANS AND TRANSFER FR OM SHRI AMIN YASIN SAIYED..ASSESSEE. SINCE THE ASSESSEE DID NOT PRODUCE THE REMAINING PERSONS MENTIONED ON PAGE 14 & 15 OF THE ASSESSMENT ORDER NOR THEIR ADDRESSES WERE GIVEN WHILE EVEN THE IR CREDITWORTHINESS WAS NOT ESTABLISHED NOR THE GENUIN ENESS OF TRANSACTIONS THE AO ADDED THE AMOUNT SHOWN AGAINST THEIR NAMES U/S 68 OF THE ACT RELYING INTER ALIA ON THE DECIS IONS IN THE CASE OF A GOVINDRAJULU MUDAILIAR VS. CIT 34 ITR 807(SC) CIT V S. PRECISION FINANCE (P) LTD. 208 ITR 465(CAL.) CIT VS. UNITED C OMMERCIAL & INDUSTRIAL CO. (P) LTD. 187 ITR 596(CAL.) ORIENTAL WIRE INDUSTRIES (P) LTD. 131 ITR 688(CAL.) C KANT & CO. VS. CIT 126 IT R 63(CAL.) PRAKASH TEXTILE AGENCY VS. CIT 121 ITR 890 (CAL.) SHANKAR INDUSTRIES VS. CIT 114 ITR 689(CAL.) AND MA UNEERI KUTTY VS. CIT 198 ITR 147(KER) AFFIRMED BY SUPREME COURT IN 201 ITR 23(ST.) APART FROM DECISION IN VELTRA DEORAJ & CO. VS. CIT 68 ITR 708(BOM.) AND CIT VS. KUNDAN INVESTMENT LTD. 25 SIT C 266.IN NUTSHELL ORIGINAL AMOUNT ADDED U/S 68 OF THE ACT WAS REDUCED TO RS. 6 73 000/- AND RS. 33 78 138/- TOTALLING TO 40 51 138/-. HERE IT MAY BE POINTED THAT NOWHERE THE AO POINTED OUT THE COMPONENT OF SHARE CAPITAL OR UNSECURED LOANS WHILE MAKING THE ADDITION OF 33 78 138/-. 6 ON APPEAL THE ASSESSEE SURRENDERED AN AMOUNT OF RS.7 95 000/- ATTRIBUTED TO THE MINORS AS MENTIONED IN PARA 4.1 OF THE APPELLATE ORDER DATED 8.12.2004. AFTER CONSIDER ING THE ITA NOS.1544 AND 1545/AHD/2007 8 SUBMISSIONS OF THE ASSESSEE THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE FOLLOWING TERMS:- 3 THE APPELLANT COMPANY WAS SET UP TO MANUFACTURE CRAFT PAPER. SOURCES OF INVESTMENT INCLUDE CASH CREDITS AND SHARE DEPOSI TS FROM PERSONS OF INSUBSTANTIAL MEANS. THE ASSESSING OFFICER MADE AN ADDITION OF RS.55 83 868/- IN RESPECT OF UNPROVED CASH CREDITS AND SHARE DEPOSITS. IN REASSESSMENT THIS ADDITION HAS BEEN BROUGHT DOWN TO RS.40 51 138/-. 4.1 THE CASE IN APPEAL IS REPRESENTED BY SHRI V.V.B HAGAL ADVOCATE. SHRI BHAGAT HAS FILED A LETTER BEFORE ME CONCEDING AN AD DITION OF RS.7 95 000/- REPRESENTING THE FOLLOWING: SAJID SALIM SAIYED RS. 3 00 000/- VAHIDHANIFSAIYED RS. 1 15 000/- MEHMOOB AMINSAIYCD RS. 2 10 000/ - RAJMAN AYUB SAIYED RS. 17 000 /- ----------------- RS. 7 95 000/- THESE SHARE APPLICANTS WERE MINOR AT THE LIME THE S HARES WERE SHOWN IO HAVE BEEN PURCHASED. NO EVIDENCE AT ALL WAS FILED I N SUPPORT OF THEIR GENUINENESS. AFTER CONSIDERING THESE ADDITIONS WHIC H ARE NOW ADMITTED AS NON-GENUINE THE DISPUTED ADDITIONS WORK OUT TO RS. 32 37 050/- [RS.6 73 000 + RS.25 64 050]. 4.2 SHRI BHAGAT FURTHER SUBMITS AS FOLLOWS VIDE HIS LETTER DATED 07-12- 2004: THE DETAILS REGARDING THE PRESENT POSITION OF SHARE HOLDERS CREDITORS ARE YET TO BE WORKED OUT. THIS COULD NOT BE WORKED OUT AS THERE WAS A OCCASION OF MARRIAGE IN FAMILY OF DIRECTORS. 5 THE ASSESSMENT ORDER DISCUSSES FACTS RELATING TO THE DEPOSITS REPRESENTING THE ADDITION. I AGREE WITH THE AO THAT THE GENUINENESS OF THE CASH CREDITS / SHARE DEPOSITS HAS NOT BEEN ESTABLIS HED. THE APPERTAINING FACTS ARE FAIRLY INDICATIVE OF NON-GENUINENESS. FOR INSTANCE SHRI YASMIN SAIYED WHO MADE A SHARE DEPOSIT OF RS.1 00 000/- AS PER RECORD MADE THE DEPOSIT OUT OF GIFTS RECEIVED. THE AGRICULTURIS T DEPOSITORS HAVE CLAIMED UNREALISTIC RECEIPTS FROM AGRICULTURE. SOME OTHERS TOO HAVE SHOWN INVESTMENTS OUT OF GIFTS. THE ASSESSMENT ORDER GIVE S ADEQUATE JUSTIFICATION FOR THE DISALLOWANCE. THE OBSERVATIONS OF THE AO IN THE CONTEXT OF SHARE DEPOSITS OF RS.17 27 500/- MADE IN THE NAMES OF NIN E LADIES ARE REPRODUCED BELOW: ITA NOS.1544 AND 1545/AHD/2007 9 FROM EXAMINATION OF THE ABOVE U/S 131 OF THE ACT I T COME TO MY NOTICE AS UNDER: 01 MOST OF THE LADIES ARE OF FAMILY MEMBERS OF THE SAIYED GROUP. 02 THOUGH THE ASSESSEE HAS SHOWN IDENTITY OF THE LE NDERS IT IS NOT PROVED CREDIT WORTHINESS AND MODE OF TRANSACTIO N BY THE ASSESSEE. 03 NO BANK ACCOUNT HAS BEEN PRODUCED. ALL THE TRANS ACTIONS ARE IN CASH ONLY. 04 ALL THE LADY MEMBERS HAS SHOWN TO HAVE BEEN DEPO SITED OUT OF LOAN AND TRANSFER FROM SHRI AMIN YASMIN SAIYED. HOWEVER NO ACCOUNT OF AMIN YASMIN SAIYED IS PRODUC ED BEFORE ME. 05 THEY HAVE NOT EARNED ANY INCOME IN THE PAST. 06 NO CREDITWORTHINESS HAS BEEN PROVED. 07 THE ABOVE SAID DEPOSITS IS NOTHING BUT UNACCOUNT ED MONEY OF THE ASSESSEE COMPANY INTRODUCED IN THE BOOKS OF ACCOUNTS BY WAY OF SHARE APPLICATION MONEY THROUGH FAMILY MEMBERS TO HAVE BEEN RECEIVED BY THEM AS LOAN. 08 NO PROOF OF RETURNING LOAN TO HAVE BEEN ESTABLIS HED NOR PROOF OF SHARE ALLOTTED HAVE BEEN PRODUCED. CONSIDERING THE ABOVE FACTS THE ASSESSEE HAS NOT PR OVED GENUINENESS OF THE SHARE APPLICATION MONEY CREDITED IN THE BOOKS OF ACCOUNT AND NO CREDITWORTHINESS OF THE LENDERS A ND TRANSACTION HAVE BEEN FOUND GENUINE. 6 THE GENUINENESS OF THE CASH CREDITS / SHARE DEPOS ITS HAS NOT BEEN ESTABLISHED IN COURSE OF THE APPELLATE PROCEEDINGS TOO. I AM THEREFORE SATISFIED THAT THE ADDITIONS HAVE BEE MADE FOR SUFF ICIENT CAUSE. THE ADDITIONS ARE UPHELD. 7 ON FURTHER APPEAL BY THE ASSESSEE THE ITAT AHMED ABAD BENCH-C VIDE THEIR ORDER DATED 03-03-2006 IN ITA NO.3933/AHD/2004 RESTORED THE MATTER BACK TO THE F ILE OF THE LD. CIT(A) WITH THE FOLLOWING OBSERVATIONS:- 6. THE LD. AR SUBMITTED THAT THE CIT(A) HAS NOT CO NSIDERED ALL FACTS. THE CIT(A) DID NOT PROVIDE SUFFICIENT OPPORTUNITY O F HEARING. THE AR DREW OUR ATTENTION ON ASSESSEE'S LETTER DATED 7-12-2004 WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER AS UNDER:- SHRI BHAGAT FURTHER SUBMITS AS FOLLOWS VIDE HIS LE TTER DATED 7-12- 2004: ITA NOS.1544 AND 1545/AHD/2007 10 THE DETAILS REGARDING THE PRESENT POSITION OF SHARE HOLDERS CREDITORS ARE YET TO BE WORKED OUT. THIS COULD NOT BE WORKED OUT AS THERE WAS A OCCASION OF MARRIAGE IN FAMILY O F DIRECTORS. 7. THE LD. AR FURTHER SUBMITTED THAT A DISCRETI ON HAS BEEN CONFERRED ON THE A.O. UNDER SECTION 69 OF THE ACT TO TREAT THE S OURCE OF INVESTMENT AS THE INCOME OF THE ASSESSEE IF THE EXPLANATION OFFER ED BY THE ASSESSEE IS NOT FOUND SATISFACTORY AND THE SAID DISCRETION HAS TO BE EXERCISED KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PARTICUL AR CASE. THE LD. AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE JUDGEMENT OF APEX COURT IN THE CASE OF CIT VS.S;M.P.K.NOORJAHAN 237 JTR 570 (SC). THE LD. AR HAS ALSO RELIED UPON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF MITESH ROLLING MILLS (P) LTD. VS. CIT (258 ITR 278) (GUJ.) AND DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF BARODA SYNTHETI CS LTD. VS. ACIT (2005) 197 CTR (RAJ.) 432. 8. THE ID. DR ON THE OTHER HAND RELIED UPON THE ORD ER OF CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO. DISCHAR GE ITS BURDEN. HE RELIED UPON THE DECISION REPORTED IN 47 ITD 374 (DELHI) 1 26 ITR 663 148 ITR 689 208 ITR 465. THE ID. DR FURTHER SUBMITTED THAT DECISION RELIED UPON BY THE LD. AR IN CAST OF CIT VS. SMT.P.K.NOORJAHAN (SUPRA) IS DISTINGUISHABLE ON FACTS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD AND GONE THROUGH THE DECISION CITED. IT HAS BEEN NO TICED THAT THE ASSESSEE DID NOT WORK OUT THE DETAILS REGARDING PRESENT POSI TION OF SHAREHOLDERS CREDITORS ON ACCOUNT OF MARRIAGE IN THE FAMILY OF D IRECTORS. THUS ASSESSEE COULD BE PROVIDED SUFFICIENT TIME TO PUT THEIR CASE . WE FIND THAT THE C1T(A) HAS CONFIRMED THE ADDITION WHEREAT CONSIDERING THE EXPLANATION AND DETAILS IN INDIVIDUAL CASE HE SIMPLY RELIED UPON A CONSOLIDATED VIEW. IN THIS REGARD WE WOULD' LIKE TO REFER THE FINDING OF HON 'BLE GUJARAT HIGH COURT IN THE CASE OF MITESH ROLLING MILLS (P) LTD. VS. CIT ( SUPRA) WHICH IS ASUNDER:- ''IN THE INSTANT CASE THE TRIBUNAL DID NOT AT ALL CONSIDER ANY OF AFORESAID ASPECTS. AFTER CONSIDERING THE FINDING WH ICH WEIGHED WITH THE TRIBUNAL IN CONFIRMING THE ORDER OF THE COMMISS IONER OF INCOME- TAX (APPEALS) IT APPEARS THAT THE TRIBUNAL PROCEED ED ON THE FOOTING THAT SINCE THE ASSESSEE DID NOT OFFER ANY EXPLANATI ON FOR THE CASH CREDIT ENTRIES THE AMOUNTS IN QUESTION HAD TO BE T REATED AS INCOME UNDER SECTION 68 OF THE ACT. SINCE THAT APPROACH IS NOT IN CONSONANCE WITH THE LAW LAID DOWN BY THE APEX COURT IN SMT.P.K.NOORJAHAN'S CASE [1999J 237 ITR 570 WE ARE OF THE VIEW THAT THE MATTER IS REQUIRED TO BE REMANDED TO THE TRIBUNAL FOR TAKING A FRESH DECISION IN THE MATTER IN ACCORDANCE WITH L AW AFTER APPLYING THE TEST LAID DOWN BY THE APEX COURT IN CIT VS. SMT .P.K.NOORJAHAN [1999] 237ITR 570; ROSHAN DI HATTI V. CIT [1977] 10 7 ITR 939 (SC) ITA NOS.1544 AND 1545/AHD/2007 11 AND CIT VS. BHARAT ENGINEERING AND CONSTRUCTION CO. [1972] 83 ITR 187 (SC).' 10 IN THE LIGHT OF ABOVE DISCUSSION AND KEEPING IN VIEW THE ABOVE FINDING OF JURISDICTIONAL HIGH COURT WE FIND IT AP PROPRIATE TO SEND BACK THIS MATTER TO THE FILE OF CIT(A) TO DECIDE THE MATTER A FRESH IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARI NG TO BOTH SIDES. 8 IN PURSUANCE TO THE AFORESAID DIRECTIONS OF THE ITAT THE CIT(A) IN THE IMPUGNED ORDER CONCLUDED IN THE FOLLO WING TERMS: 2. IN RESPONSE TO THE NOTICE OF HEARING SHRI V. V. BHAGAT ADVOCATE ATTENDED AND FILED WRITTEN SUBMISSION WHICH IS PLAC ED ON RECORD. THE CASE IS DISCUSSED WITH HIM. 3. THE ONLY ISSUE RAISED BEFORE THE HON'BLE ITAT AN D THE CONTENTION RAISED BY THE APPELLANT ARE SUCH THAT THE SHARE DEP OSITS AND LOANS TAKEN BY THE APPELLANT COMPANY ARE GENUINE AND CIT(A) OUG HT TO HAVE ACCEPTED THE SAME. THE ESSENCE OF THE CONTENTION IS NARRATED BELOW: 'OUT OF TOTAL ADDITION OF SHARES DEPOSITS AND LOANS OF RS.6 73 000/-- + RS.33 78 138/- = 40 51 138/- RS.7 95 000/- HAS BEEN CONCEDED BY YOUR APPELLANT AT C1T(A) STAGE AND HENCE THE ADDITION OF RS.6 75 000/- + RS.25 83 138/- = RS.32 56 138/- IS IN DISPUTE. FOR VARIOUS REASONS AND BASED ON EVIDENCES PRODUCED BEFORE THE ACIT AND CIT(A) THE SHARE DEPOSITS AND LOANS ARE G ENUINE AND THEREFORE THE ADDITION OF RS.32 56 138/- MADE U/S. 68 AND REMAINING IN DISPUTE MAY BE ALLOWED.' 4 SINCE THE ISSUE INVOLVED REQUIRES CONSIDERATION O F PERTINENT FACTS AND APPRECIATION OF EVIDENCES A REMAND REPORT WAS ASKED FROM THE AO VIDE THIS OFFICE LETTER NO.CIT(A)/VLS/L55/06-07 DAT ED 30.5.2006. IN RESPONSE TO THE SAME THE AO HAS SENT REMAND REPORT VIDE HER OFFICE LETTER NO.ACIT/V.C./VAPI/SPML/2005-06 DATED 17.7.2006. 5 WHILE GIVING A FRESH OPPORTUNITY TO THE APPELLANT THE AO REQUESTED THE APPELLANT VIDE HER LETTER DATED 15.6.2006 TO FU RNISH THE FOLLOWING DETAILS: 1. CONFIRMATION LETTERS FROM THE DEPOSITORS ALONG W ITH DETAILED NAME AND ADDRESS. 2. ASSESSMENT DETAILS IN RESPECT OF THE DEPOSITORS SUCH A COPY OF THE RETURN OF THE RELEVANT YEAR IN WHICH THE DEPOSITS W ERE MADE ALONG WITH COPIES OF BALANCE SHEET AND CAPITAL ACCOUNT. ITA NOS.1544 AND 1545/AHD/2007 12 3. COPY OF BANK ACCOUNT FOR THE YEAR IN WHICH THE D EPOSITS WERE MADE BY THE DEPOSITORS. SINCE THE ABOVE DETAILS ARE VITAL TO EXAMINE THE IS SUE AT HAND THE AO RIGHTLY REQUIRED THE SAME. THE APPELLANT EVEN DURING THE REMAND REPORT PROCEE DINGS COULD NOT FILE DETAILS TO THE SATISFACTION OF THE AO. THE APPELLAN T'S SUBMISSION IS REPRODUCED BELOW: 1. 'THE COPY OF CONFIRMATION OF THE DEPOSITORS -W ITH NAME & ADDRESS ARE FILED HERE WITH. 2. SINCE ALMOST 13 YEARS HAVE BEEN PASSED NOW IT I S DIFFICULT TO GET THE ASSESSMENT RECORD OF THE DEPOSITORS. 3. COPY OF BANK ACCOUNT OF DEPOSITORS COULD NOT BE OBTAINED AS THEY SAY THAT IT IS THEIR PRIVATE MATTER AND THEY CANNOT DISCLOSE TO US. HOWEVER WE HAVE PRODUCED OUR COPY OF BANK A/C. ALL THE DEPOSITS ARE A/C. PAY ORDER OR DRAFT OR BY A/C PAYEE CHEQUES ONLY. ALL THESE DETAILS ARE PLACE AT THE TIME OF ORIGINAL ASSESSMEN T ALSO' 6. IT IS OBVIOUS THAT EVEN WHEN THE OPPORTUNITY GIV EN AT THE REMAND REPORT STAGE THE APPELLANT HAS NOTHING NEW TO OFFER BY WAY OF EVIDENCE EXCEPT WHAT HAS ALREADY BEEN FILED DURING THE ORIGI NAL ASSESSMENT PROCEEDINGS WHICH WERE REJECTED AFTER DETAILED EXAM INATION BY THE THEN ASSESSING OFFICER. THE AO HAS RIGHTLY POINTED OUT T HAT THE APPELLANT'S PLEA THAT IT IS A MATTER THAT IS 13 YEARS OLD AND THEREF ORE HE DOES NOT HAVE THE RELEVANT INFORMATION IS AN INSUPPORTABLE ARGUMENT A S THE ONUS TO PROVE THE GENUINENESS OF THE UNEXPLAINED LOANS/SHARE DEPOSITS IS UPON THE APPELLANT. IT IS QUITE CLEAR THAT THE ONUS TO PROVE ITS CASE IS UPON THE APPELLANT AS THE APPELLANT IS IN APPEAL AND NOT THE DEPARTMENT. THEREFORE IN THE INSTANT CASE THE APPELLANT HAS FAILED TO DIS CHARGE HIS ONUS. IN THAT CASE IT WOULD NOT BE UNFAIR TO CONCLUDE THAT THE AP PELLANT HAS FAILED TO PROVE THAT THE UNEXPLAINED LOANS/SHARE DEPOSITS ARE GENUINE. THERE IS NO MERIT IN THE APPELLANT'S ARGUMENT THAT THE DEPOSITORS NOW REFUSED TO GIVE DETAILS AS THEY THINK IT IS A PRIVA TE MATTER. LOOKING TO THE TOTALITY OF FACTS THE AO HAS RIGHTLY RECOMMENDED IN THE REMAND REPORT TO UPHOLD THE ADDITION AFTER PLACING HER RELIANCE ON T HE DECISION OF HON'BLE COURTS WHERE IN A RATIO HAS BEEN LAID DOWN THAT IT IS FOR THE ASSESSEE TO ESTABLISH THE GENUINENESS OF ALL THE DEPOTS IN HIS BOOKS. HON'BLE GUJARAT HIGH COURT IN THE CASE OF BOMIN P. LTD. V/S. OIT 16 0 ITR 477 HAS RULED OUT THAT THAT SECTION 68 ENJOINS THE ASSESSEE TO OF FER AN EXPLANATION ABOUT NATURE AND SOURCE OF ANY SUM FOUND CREDITED IN THE BOOKS OF ACCOUNTS FOR ANY PREVIOUS YEAR. AND IF THERE IS NO EXPLANATION O R IF THE EXPLANATION IS UNSATISFACTORY IN THE OPINION OF ASSESSING OFFICER THE SUM SO CREDITED IS TO BE TREATED AS INCOME AND BROUGHT TO TAX ACCORDINGLY . THE ASSESSEE HAS TO ITA NOS.1544 AND 1545/AHD/2007 13 PROVE THE IDENTITY OF THE CREDITOR CREDIT WORTHINE SS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. IT HAS BEEN RIGHTLY HELD THAT ANY TRANSACTION EVEN THOUGH BANK IS NOT CONCLUSIVE EVID ENCE ABOUT ITS GENUINENESS. AS HELD BY THE HON'BLE CALCUTTA HIGH C OURT IN THE EASE OF M/S. PRECISION FINANCE P. LTD. 208 ITR 465 LOANS T HROUGH BANK ALSO CANNOT BE ACCEPTED AS GENUINE UNLESS THE IDENTITY A ND CREDIT WORTHINESS OF THE CREDITOR IS ESTABLISHED AND GENUINENESS OF THE TRANSACTION IS PROVED. 8 ON THE BASIS OF THE ABOVE FACTUAL MATRIX OF THE C ASE I AM CONSTRAINED TO HOLD THAT THE AO IS JUSTIFIED IN MAK ING AND THE THEN CIT(A) HAS RIGHTLY UPHELD THE ADDITION OF RS.32 56 138/- O UT OF TOTAL ADDITION OF SHARES DEPOSITS AND LOANS OF RS.6 73 000/- + RS.33 78 138/- =RS.40 51 138/-THE APPELLANT HAS GROSSLY FAILED TO DISCHARGE HIS BURDEN TO PROVE THE GENUINENESS OF THE TRANSACTION AS WELL AS THE CREDIT WORTHINESS OF THESE DEPOSITORS OR SHARE DEPOSITORS. THE APPELL ANTS CONTENTIONS ARE THEREFORE REJECTED. 9 IN THE RESULT THE APPEAL IS DISMISSED AFTER CAR EFUL APPRECIATION OF FACTS AND HAVING HELD THAT THE APPELLANT FAILED TO DISCHARGE HIS LEGAL ONUS IN SPITE OF GIVING REASONABLE OPPORTUNITY TO PROVE ITS CASE. 9 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHA LF OF THE ASSESSEE WHILE CARRYING US THROUGH PAGES 1 TO 6 23 49 66 & 114 OF THE PAPER BOOK SUBMITTED THAT THE DISPUTE RELATES TO T HE ADDITION OF RS.32 56 138/- U/S 68 OF THE ACT. THE SAID ADDITION COMPRISES THREE AMOUNTS; RS.6 73 000/- OF WHICH RS.1 00 000/- IS ON ACCOUNT OF SHARE CAPITAL AND RS.5 73 000/- ON ACCOUNT OF UNSEC URED LOANS; RS.8 55 550/- WAS ON ACCOUNT OF SHARE CAPITAL AND RS.17 27 500/- ON ACCOUNT OF UNSECURED DEPOSITS. IT WAS PLEADED TH AT THOUGH THE LD. CIT(A) REFERRED TO THE OBSERVATIONS OF THE ITAT IN THE IMPUGNED ORDER HE DID NOT CONSIDER THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF MITESH ROLLING MILLS P. LTD. V S. CIT (2002) 258 ITR 278 (GUJ). AS REGARDS SHARE CAPITAL THE LEARNE D AR CONTENDED THAT IN VIEW OF THE DECISION IN THE CASE OF CIT VS. LOVELY EXPORTS LTD. 216 CTR(SC) 195 UMA POLYMERS (P) LTD. VS. DCI T (2006) 100 ITD 1 (JODHPUR) (TM) CIT VS. PRAGATI CO-OPERATIVE BANK LTD. (2005) (2005) 278 ITR 170 (GUJ) AND MURLIDHAR LAHORIMAL VS. CIT 280 ITR 512 (GUJ) THE ADDITION U/S 68 OF THE ACT WAS NOT J USTIFIED. ON THE ITA NOS.1544 AND 1545/AHD/2007 14 OTHER HAND THE LEARNED DR WHILE REFERRING TO PAGE 2 OF THE IMPUGNED ORDER OF THE LD. CIT(A) CONTENDED THAT THE ITAT HAD RESTORED THE ISSUE TO THE FILE OF THE CIT(A) ON THE PLEA OF THE ASSESSEE THAT DETAILS REGARDING THE PRESENT POSITI ON OF THE SHAREHOLDERS AND CREDITORS COULD NOT BE SUBMITTED D UE TO THE MARRIAGE IN THE FAMILY OF THE DIRECTORS. SINCE THE ASSESSEE DID NOT FURNISH ANY FURTHER DETAILS THERE WAS NO GROUND FO R INTERFERENCE WITH THE FINDINGS OF THE CIT(A). WHILE REFERRING TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BOMIN P. LTD. VS. CIT (1986) 160 ITR 477 (GUJ) C. KANT & CO. VS. CIT (19 80) 126 ITR 63 (CAL) AND ADDL. CIT VS. HANUMAN AGARWAL (1985) 151 ITR 150 (PAT) THE LEARNED DR CONTENDED THAT THE ASSESSEE HAVING F AILED TO ESTABLISH THE CREDITWORTHINESS OF ANY OF THE DEPOSI TORS THE ADDITION UPHELD BY THE CIT(A) SHOULD BE SUSTAINED ESPECIALL Y WHEN NO NEW FACTS HAVE BEEN BROUGHT TO THE NOTICE OF THE CIT(A) .IN HIS REJOINDER THE LEARNED AR CONTENDED THAT THIS BEING THE FIRST YEAR OF THE OPERATIONS OF THE COMPANY NO ADDITION COULD HAVE B EEN MADE U/S 68 OF THE ACT SINCE ALL THE RELEVANT DETAILS AND CONFI RMATIONS WERE DULY FILED BEFORE THE AO AS POINTED OUT IN REPLY OF THE ASSESSEE PLACED AT PAGES 220 TO 225 OF THE PAPER BOOK 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. AS I S APPARENT FROM THE EARLIER ORDER DATED 3.3.2006 OF THE ITAT MATTE R WAS REMANDED TO THE LD. CIT(A) ON THE PLEA ON BEHALF OF THE ASSE SSEE THAT THE DETAILS REGARDING THE PRESENT POSITION OF SHARE HOLDERS & C REDITORS COULD NOT BE WORKED OUT AS THERE WAS A MARRIAGE IN THE FAMILY OF DIRE CTORS. IN THESE CIRCUMSTANCES THE ITAT DIRECTED THE LD. CIT(A) TO CONSIDER THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MITESH ROL LING MILLS (P) LTD. VS. CIT (258 ITR 278) (GUJ.) AND DECIDE THE MATTER AFRESH IN ACC ORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE SIDES. THOUGH THE ASSEESSE UNDISPUTEDLY DID NOT PLACE ANY FURTHER MATERIAL BEFORE THE LD. CIT(A) THE LATTER ALSO DID NOT ADVERT TO THE OBSERVATIONS OF THE HONBLE JURISDICTIONAL ITA NOS.1544 AND 1545/AHD/2007 15 HIGH COURT IN THE CASE OF MITESH ROLLING MILLS (P) LTD.(SUPRA) REFERRED TO BY THE ITAT IN THEIR ORDER. IN THE INSTANT CASE WE FIND T HAT THE AFORESAID AMOUNT OF RS. 32 56 128/- INCLUDES AN AMOUNT OF RS. 1 LAC TOWARDS SHARE CAPITAL BY SHRI YASIN HUSSAIN SAIYED EMBEDDED IN THE ADDITION OF RS.6 73 000/-. THOUGH THERE IS NO SPECIFIC FINDING IN THE ASSESSMENT ORDER DATED 8.3.1996 AS TO WHETHER AMOUNTS OF RS.8 55 550/- & RS.17 27 500/- WERE TOWARDS UNSECURED LOANS OR SHAR E CAPITAL IN THE SUBSEQUENT ASSESSMENT ORDER IN PURSUANCE TO DIR ECTIONS OF THE ITAT THESE TWO HAVE BEEN ATTRIBUTED TO SHARE CAPI TAL BY THE AO AND CONSEQUENTLY THE LD. CIT(A) ALSO UPHELD THE ADDITI ONS TREATING THE AMOUNT TOWARDS SHARE CAPITAL. EVEN IN THE IMPUGNED ORDER THE LD. CIT(A) HAVE NOT RECORDED HIS FINDINGS AS TO WHETHER OR NOT THE AMOUNT RS. 33 78 138/- WAS TOWARDS SHARE CAPITAL. H OWEVER BEFORE US THE LD. AR ON BEHALF OF THE ASSESSEE WHILE INVI TING OUR ATTENTION TO THE RELEVANT PAGE 66 & 113 OF THE PAPER BOOK SUB MITTED THAT THE AMOUNT OF RS.8 55 550/- WAS ON ACCOUNT OF SHARE CA PITAL AND RS.17 27 500/- ON ACCOUNT OF UNSECURED DEPOSITS. 10.1 AS REGARDS SHARE CAPITAL HONBLE DELHI HIGH COURT IN CIT VS. SOPHIA FINANCE LTD. 205 ITR 98(DEL)(FB) ENUNCIATED THAT S. 68 REPOSES IN THE AO THE JURISDICTION TO INQUIRE FROM THE ASSESSEE THE NATU RE AND SOURCE OF THE SUM FOUND CREDITED IN ITS BOOKS OF ACCOUNT. IF THE EXPLANATIO N OFFERED BY THE ASSESSEE IS FOUND NOT TO BE SATISFACTORY FURTHER ENQUIRIES CAN BE MADE BY THE AO HIMSELF BOTH IN REGARD TO THE NATURE AND THE SOURCE OF THE SUM CREDITED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT SINCE THE WORDING OF S. 68 IS VERY WIDE. THE FULL BENCH OPINED THAT- 'IF THE SHAREHOLDERS EXIST THEN POSSI BLY NO FURTHER ENQUIRY NEED BE MADE. BUT IF THE ITO FINDS THAT THE ALLEGED SHAREHO LDERS DO NOT EXIST THEN IN EFFECT IT WOULD MEAN THAT THERE IS NO VALID ISSUAN CE OF SHARE CAPITAL. SHARES CANNOT BE ISSUED IN THE NAME OF NON-EXISTING PERSON S........ IF THE SHAREHOLDERS ARE IDENTIFIED AND IT IS ESTABLISHED THAT THEY HAVE INVESTED MONEY IN THE PURCHASE OF SHARES THEN THE AMOUNT RECEIVED BY THE COMPANY W OULD BE REGARDED AS A CAPITAL RECEIPT BUT IF THE ASSESSEE OFFERS NO EXPLA NATION AT ALL OR THE EXPLANATION OFFERED IS NOT SATISFACTORY THEN THE PROVISIONS OF S. 68 MAY BE INVOKED'. IT IS ITA NOS.1544 AND 1545/AHD/2007 16 APPARENT THAT THE COURT HAD NOT REFLECTED UPON THE QUESTION AS TO WHETHER THE BURDEN OF PROOF RESTED ENTIRELY ON THE ASSESSEE AN D AT WHICH POINT IF ANY THIS BURDEN COULD JUSTIFIABLY BE SHIFTED TO THE AO. THE FULL BENCH IN FACT CLARIFIED THAT THEY WERE NOT DECIDING AS TO WHOM AND TO WHAT EXTEN T IS THE ONUS TO SHOW THAT AN AMOUNT CREDITED IN THE BOOKS OF ACCOUNT IS SHARE CA PITAL AND WHEN DOES THAT ONUS STAND DISCHARGED. THIS WILL DEPEND ON THE FACT S OF EACH CASE. RECENTLY HONBLE APEX COURT WHILE AFFIRMING THE ORDER OF TH E HONBLE DELHI HIGH COURT IN CIT VS. LOVELY EXPORTS (PVT. ) LTD. & CIT VS. DIV INE LEASING & FINANCE LTD. 299 ITR 268(DEL.) IN 216 CTR (SC) 195 HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM THE ALLEGED B OGUS SHAREHOLDERS WHOSE NAMES ARE GIVEN TO THE AO THEN THE DEPARTMENT IS F REE TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. THUS THE HON BLE APEX COURT HELD THAT IN SUCH CIRCUMSTANCES THE AMOUNT RECEIVED TOWARDS SHA RE CAPITAL OF THE COMPANY CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE COM PANY. THIS VIEW WAS LATER REITERATED BY THE HONBLE APEX COURT IN ANOTHER DEC ISION DATED 21.1.2008 IN CIT VS. SHIPRA RETAILERS(P) LTD. IN CIVIL APPEAL NO.CC4 51 OF 2008. THE SAID DECISION IN LOVELY EXPORTS (P) LTD.(SUPRA) HAS RECENTLY BEEN FOLLOWED BY THE HONBLE CHHATISGARH HIGH COURT IN ACIT VS. VENKATESHWAR ISP AT P LTD. 319 ITR 393 & BY HONBLE DELHI HIGH COURT IN BHAVSHAKTI STEEL MINES P LTD. 320 ITR 619(DEL.). 10.11 IN THE INSTANT CASE UNDISPUTEDLY AN AMOUN T OF RS. 1 LAC EMBEDDED IN THE ADDITION OF RS. 6 73 000/- WAS ATTRIBUTED TO THE S HARE CAPITAL[PAGE 49 OF THE PB] AND THERE IS NO DISPUTE THAT THE SHAREHOLDER IS NO T IDENTIFIABLE. AS REGARDS THE ADDITION OF 8 55 550/- THOUGH THE LD. AR CONTENDE D BEFORE US THAT THE AMOUNT IS TOWARDS SHARE CAPITAL A BARE PERUSAL OF CONFIRMATI ONS PLACED AT PAGES 66 TO 112 OF THE PB REVEAL THAT ONLY AN AMOUNT OF RS. 3 LACS ATTRIBUTED TO PERSONS AT SL. NO. 1 TO 6 APPEARS TO BE TOWARDS SHARE CAPITAL WHILE REMAINING AMOUNT IS TOWARDS UNSECURED LOANS. LIKE WISE ONLY AN AMOUNT OF RS. 7.12 LACS EMBEDDED IN THE ADDITION OF RS. 17 27 500/- APPEARS TO BE TOWARDS S HARE CAPITAL AND THE REMAINING TOWARDS UNSECURED LOANS AS APPEARING FRO M CONFIRMATIONS PLACED AT PAGE 114 TO 217 OF THE PB. SINCE THE APPEAL PERTA INS TO THE AY 1993-94 AND TWICE THE ITAT HAVE REMANDED THE MATTER ON EARLIER OCCASIONS WE DO NOT THINK IT PROPER TO RESTORE THE MATTER AGAIN TO THE FILE O F THE AO OR THE LD. CIT(A) IN ORDER ITA NOS.1544 AND 1545/AHD/2007 17 TO IDENTIFY SHARE CAPITAL AND UNSECURED LOANS EMBED DED IN THE ADDITIONS OF RS. 8 55 500/- AND RS. 17 27 500/- AND RECORD THEIR FIN DINGS ACCORDINGLY. IN THESE CIRCUMSTANCES THE MATTER IS BEING DECIDED IN ACCO RDANCE WITH FACTS BROUGHT TO OUR NOTICE BY THE RESPECTIVE PARTIES AND AS WE UNDE RSTOOD ON PERUSAL OF THE RELEVANT DOCUMENTS IN THE PAPER BOOK SUBMITTED BEFO RE US. AS IS APPARENT FROM THE CONFIRMATIONS OF THE RESPECTIVE PARTIES ONLY A N AMOUNT OF RS. 3 LACS OUT OF RS. 8 55 500 & RS. 7.12 LACS OUT OF RS. 17 27 500 IS TOWARDS SHARE CAPITAL. IN THESE FACTS AND CIRCUMSTANCES IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS BY THE HONBLE APEX COURT ESPECIALLY WH EN THE EXISTENCE OF AFORESAID SHAREHOLDERS HAS NOT BEEN DOUBTED WE HAVE NO ALTE RNATIVE BUT TO VACATE THE FINDINGS OF LEARNED CIT(A) AND DELETE THE AFORESAID ADDITIONS ON ACCOUNT OF SHARE CAPITAL . 10.2 AS REGARDS THE AFORESAID REMAINING ADDITION OF RS.5 73 000/- WE FIND THAT THE THIS AMOUNT COMPRISES LOAN AMOUNT S IN THE NAMES OF FOLLOWING PERSONS: 1. YASIN HUSSAIN SAIYED RS.1 25 000 2. SHARIF JAMAL RS.2 00 000 3. YUNUS SHARIF RS.1 39 000 4. AYUB MOHID HUSAIN RS. 69 000 5. AMIN SADIQ QURESHI RS. 40 000 THE AFORESAID AMOUNTS WERE STATED TO BE BROUGHT IN BY YASIN HUSAIN SAIYED SHRI SHARIF JAMAL & SHRI AMIN SADIQ QURESHI ON VARIOUS DATES BETWEEN 15.9.1992 TO 30.3.93 THROUGH PAY ORDE RS/CHEQUES OUT OF THEIR AGRICULTURAL INCOME AND THEIR CONFIRMATION S ARE PLACED ON PAGE 51 TO 64 OF THE PAPER BOOK. HOWEVER NEITHER T HE DATES NOR THE MODE OF RECEIPT NOR ANY CONFIRMATION OR THE SOURCE OF RECEIPT AND THE EVIDENCE THEREOF IN RESPECT OF AMOUNT OF RS. 1 39 000/- IN THE NAME OF YUNUS SHARIF & RS. 69 000/- IN THE NAME OF AYUB MOHID HUSAIN APPEARS TO HAVE BEEN SUBMITTED BEFORE THE LOWER AU THORITIES NOR EVEN BEFORE US ANY MATERIAL HAS BEEN REFERRED TO . ITA NOS.1544 AND 1545/AHD/2007 18 10.3 AS REGARDS ADDITION OF RS. 8 55 550/- AS A LREADY POINTED OUT AN AMOUNT OF RS. 3 LACS IS ATTRIBUTED TO SHARE CAP ITAL IN RESPECT OF PERSONS MENTIONED AT SL. NO.1 TO 6 ON PAGE 66 OF TH E PAPER BOOK AND THE REMAINING AMOUNT OF RS.5 55 550 IN RESPECT OF PERSONS MENTIONED AT SL. NO.1 & & 7 TO 31 HAS BEEN BROUGHT IN BETWEEN 27.11.1992 TO 30.3.1993 BY WAY OF UNSECURED LOANS A ND THEIR CONFIRMATIONS ARE PLACED IN THE PAPER BOOK. 10.4 LIKEWISE IN RESPECT OF AMOUNT OF RS. 17 27 500/- BROUGHT IN ON VARIOUS DATES BETWEEN 17.12.1992 TO 12.3.1993 TH ROUGH POS/CHEQUES AND EVEN IN CASH IN THE NAME OF FOLLO WING NINE LADIES [PAGE 113 OF THE PAPER BOOK] : SR. NO. NAME OF THE PERSON AMOUNT REMARKS PAGES OF THE PAPER BOOK 1 SMT. SEHWAX SAUKAT SAIYED 217500 CONFIRMATION ATTACHED 114 TO 123 2 SMT. KULSUM MOHEMADALI SAIYED 225000 124 TO 133 3 SMT. NORRBANU AMIN SAIYED 200000 134 TO 146 4 SMT. HAJRA RAFIQ SAIYED 170000 147 TO 159 5 SMT. NOORJAHAN AYUB SAIYED 210000 160 TO 172 6 SMT. SAFIYA YASIN SAIYED 225000 173 TO 186 7 SMT. HAMIDA SALIM SAIYED 200000 187 TO 199 8 MISS. FIRDOS AYUB SAIYED 140000 200 TO 205 9 SMT. AKLIMA HANIF SAIYED 140000 206 TO 217 1727500 EVEN THOUGH THE LD. AR STATED THAT THE SAID AMOUNT IS ON ACCOUNT OF UNSECURED LOANS WE FIND FROM THEIR CONFIRMATIONS PLACED IN THE PAPER BOOK THAT AN AMOUNT OF RS. 7.12 LACS HAS BEE N ATTRIBUTED TO SHARE CAPITAL WHILE REMAINING AMOUNT OF RS.10 15 50 0/- IS ON ACCOUNT OF UNSECURED LOANS. ITA NOS.1544 AND 1545/AHD/2007 19 10.5 THE LD. AR ARGUED THAT THIS BEING THE FIRST YEAR OF OPERATIONS OF THE COMPANY AND TURNOVER BEING ONLY RS. 88 000/- ADDITION ON ACCOUNT OF SHARE CAPITAL OR UNSECURED LOANS HAVING RECOURSE TO PROVISIONS OF SEC. 68 WAS NOT JUSTIFIED INTER ALI A IN THE LIGHT OF VIEW TAKEN BY THE HONBLE GUJRAT HIGH COURT IN MITESH RO LLING MILLS P. LTD.(SUPRA). WE FIND THAT DESPITE DIRECTIONS OF THE ITAT IN THEIR ORDER DATED 3.3.2006 THE LD. CIT(A) WITHOUT ADVERTING TO THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT UPHELD THE ADDITION OF RS. 32 56 138/- BESIDES THE AMOUNT RS. 7 95 000/ SURRENDERED BY THE ASSESSEE BEFORE THE LD. CIT(A) AS MENTIONED IN THE APPELLATE ORDER DATED 8.12.2004. AS ALREADY POINTED OUT IN THE CASE CIT VS. SOPHIA FINANCE LTD. (1993) 113 CTR (DEL)(FB) 472 :( 1994) 205 ITR 98 (DEL)(FB) THE FULL BENCH OF THE HON'BLE HIGH COURT DID NOT LA Y DOWN ANY NORMS FOR DECIDING THE EXTENT OF ONUS OF PROOF OF THE AMOUNTS CREDITED WHEN THEY OBSERVED : 'WE MAKE IT CLEAR THAT WE ARE NOT DECIDING NOR IT IS OUR INTENTION TO DECIDE AS TO ON WHOM AND TO WHAT EXTENT IS THE ONUS TO WHOM THAT AN AMOUNT CREDITED IN THE BOOKS OF ACCOUNT IS SHARE CAPITAL AND WHEN DOES THA T ONUS STAND DISCHARGED. THIS WILL DEPEND UPON ON THE FACTS OF EACH CASE.' THIS SIGNIFICANT OBSERVATION OF THE COURT CLEARLY P OINTS OUT A SUBTLE DISTINCTION BETWEEN AN ORDINARY CASH CREDIT AND A CREDIT BY WAY OF SHARE CAPITAL. APPARENTLY THE COURT HAD IN ITS MIND THE COMPREHENSIVE LAW CON TAINED IN THE COMPANIES ACT 1956 ON THE ACCEPTANCE OF SHARE APPLICATION MONEY AND ALLOTMENT OF SHARES IN CONSIDERATION THEREFOR. WHILE IN THE CASE OF ORDINA RY LOANS OBTAINED THERE ARE OVERWHELMING JUDICIAL DECISIONS TO SAY THAT THE ONU S IS ON THE ASSESSEE TO PROVE NOT ONLY THE IDENTITY OF THE CREDITOR BUT ALSO TO ESTABLISH THE GENUINENESS OF THE TRANSACTION AND THE CREDITWORTHINESS OF THE CREDIT ORS. THESE THINGS HAVE TO BE PROVED PRIMA FACIE BY THE ASSESSEE AND ONLY AFTER T HE ASSESSEE HAS ADDUCED EVIDENCE TO ESTABLISH PRIMA FACIE THE AFORESAID TH E ONUS SHIFTS ON TO THE DEPARTMENT. MERELY ESTABLISHING THE IDENTITY OF CRE DITOR IS NOT ENOUGH[SHANKAR INDUSTRIES 114 ITR 689(CAL) C.KANT & CO. VS. CIT 12 6 ITR 63(CAL.) & CIT VS. PRECISION FINANCE PVT. LTD. 208 ITR 465(CAL.).FURTH ER THE ASSESSEE IS NOT REQUIRED TO EXPLAIN THE SOURCE OF SOURCE AS HAS BEE N HELD IN THE CASE OF SAROGI ITA NOS.1544 AND 1545/AHD/2007 20 CREDIT CORPORATION VS. CIT 1975 CTR (PAT) 1 : (1976 ) 103 ITR 344 (PAT). IN THE SAID CASE IT HAS BEEN HELD THAT ONCE THE IDENTITY I S ESTABLISHED AND THE CREDITOR PLEDGED WITH OATH THAT THEY HAVE ADVANCED THE AMOUN T IN QUESTION TO THE ASSESSEE THE BURDEN SHIFTS TO THE DEPARTMENT TO SH OW AS TO WHY IT MUST BE HELD THAT ENTRY THOUGH PURPORTING TO BE IN THE NAME OF THIRD PARTY STILL REPRESENTED THE INCOME OF THE ASSESSEE FROM SUPPRESSED SOURCES. HOWEVER IN THE INSTANT CASE THERE IS NO MATERIAL TO SHOW THAT SHARE APPLICATION MONEY OR FOR THAT MATTER UNSECURED LOANS IN THE NAME OF PERSONS WHOSE CONFIR MATIONS WERE SUBMITTED BEFORE THE AO WERE OF THE ASSESSEE-COMPANY. THE FAC T THAT SOME OF THE INVESTORS GOT THE PAY ORDERS AND LOANS FROM DIFFER ENT PERSONS IS A MATTER FOR ENQUIRY IN THE HANDS OF THE SAID INVESTORS AND NOT IN THE CASE OF THE ASSESSEE- COMPANY . SIMILARLY THE DISCREPANCIES FOUND IN THE ACCOUNT O F SOME OF INVESTORS IS A CAUSE TO MAKE ENQUIRY IN THEIR CASES. FURTHER THE FACT THAT ALL THE UNSECURED LOANS FROM THE CREDITORS WHOSE CONFIRMATIONS WERE FILED BEFORE THE AO WERE RECEIVED BY THE ASSESSEE BEFORE THE COMMENCEMENT OF THE BUSINESS OR IMMEDIATELY THEREAFTER HAS NOT BEEN DISPUTED BY TH E REVENUE. IN CIT V. BHARAT ENGINEERING AND CONSTRUCTION CO. [1972] 83 ITR 187 THE ASSESSEE WAS AN ENGINEERING CONSTRUCTION COMPANY WHICH COMMENCED I TS BUSINESS IN MAY 1943 BUT THERE WERE SEVERAL CASH CREDIT ENTRIES IN THE F IRST YEAR OF ITS BUSINESS AMOUNTING TO RS. 2.5 LAKHS THE ASSESSEE WAS CALLED UPON TO EXPLAIN SUCH CREDIT ENTRIES. THE EXPLANATION OF THE ASSESSEE DID NOT FI ND FAVOUR WITH THE AO THE CIT(A) NOR THE TRIBUNAL. HOWEVER THE TRIBUNAL DELE TED THE ADDITION BY TAKING THE PLEA THAT SUCH CASH CREDIT ENTRIES COULD NOT REPRES ENT THE INCOME OR PROFIT OF THE ASSESSEE AS THEY WERE ALL MADE VERY SOON AFTER THE COMPANY COMMENCED ITS ACTIVITIES. IN THIS MANNER THE TRIBUNAL TOOK THE V IEW THAT IN THE VERY NATURE OF THINGS THE ASSESSEE COULD NOT HAVE EARNED SUCH HUGE AMOUNT OF PROFIT VERY SOON AFTER IT COMMENCED ITS ACTIVITIES. THE APEX COURT IN THE ABOVE BACKGROUND INFERRED THAT IT WAS REASONABLE TO ASSUME THAT SUCH CREDIT ENTRIES WERE CAPITAL RECEIPTS ALTHOUGH FOR ONE REASON OR ANOTHER THE AS SESSEE HAD NOT COME OUT WITH THE TRUE STORY AS REGARDS THE PERSONS FROM WHOM SUC H AMOUNTS WERE RECEIVED. THE APEX COURT THUS APPROVED THE FINDINGS OF THE TRIBUNAL. ITA NOS.1544 AND 1545/AHD/2007 21 10.51 IN CIT V. SMT. P. K. NOORJAHAN [1999] 237 ITR 570 HONBLE APEX COURT WHILE CONSTRUING SECTION 69 OF THE ACT OBSERVED THA T THE INTENTION OF PARLIAMENT IN ENACTING SECTION 69 WAS TO CONFER A DISCRETION ON T HE INCOME-TAX OFFICER IN THE MATTER OF TREATING THE SOURCE OF INVESTMENT WHICH H AS NOT BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE AS THE INCOME OF THE ASSE SSEE AND THE INCOME-TAX OFFICER IS NOT OBLIGED TO TREAT SUCH SOURCE OF INVE STMENT AS INCOME IN EVERY CASE WHERE THE EXPLANATION OFFERED BY THE ASSESSEE IS FO UND TO BE NOT SATISFACTORY. THE QUESTION WHETHER THE SOURCE OF THE INVESTMENT S HOULD BE TREATED AS INCOME OR NOT UNDER SECTION 69 HAS TO BE CONSIDERED IN THE LIGHT OF THE FACTS OF EACH CASE. 10.52 EVEN AFTER REJECTING THE EXPLANATION GIVE N BY THE ASSESSEE IF FOUND UNACCEPTABLE THE CRUCIAL ASPECT WHETHER ON THE FAC TS AND CIRCUMSTANCES OF THE CASE IT SHOULD BE INFERRED THAT THE SUMS CREDITED I N THE BOOKS OF THE ASSESSEES CONSTITUTED INCOME OF THE PREVIOUS YEAR MUST RECEI VE THE CONSIDERATION OF THE AUTHORITIES PROVIDED THE ASSESSEE REBUT THE EVIDENC E AND THE INFERENCE DRAWN TO REJECT THE EXPLANATION OFFERED AS UNSATISFACTORY. S ECTION 68 OF THE ACT ITSELF PROVIDES WHERE ANY SUM IS FOUND CREDITED IN THE BO OKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR THE SAME MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IF THE EXPLANATION OF FERED BY THE ASSESSEE ABOUT THE NATURE AND SOURCE OF SUCH SUMS FOUND CREDITED I N THE BOOKS OF THE ASSESSEE IS IN THE OPINION OF THE ASSESSING OFFICER NOT SATI SFACTORY. SUCH OPINION FORMED ITSELF CONSTITUTES A PRIMA FACIE EVIDENCE AGAINST T HE ASSESSEE VIZ. THE RECEIPT OF MONEY AND IF THE ASSESSEE FAIL TO REBUT THE SAID E VIDENCE THE SAME CAN BE USED AGAINST THE ASSESSEE BY HOLDING THAT IT WAS A RECEI PT OF AN INCOME NATURE. IN THE CASE IN HAND THE AUTHORITIES CONCURRENTLY FOUND TH E EXPLANATION OFFERED BY THE ASSESSEE UNACCEPTABLE. THE LD. CIT(A) UPHELD THE OP INION FORMED BY THE ASSESSING OFFICER THAT THE EXPLANATION OFFERED WAS NOT SATISFACTORY. 10.53 IN THE LIGHT OF OBSERVATIONS OF THE HON BLE JURISDICTIONAL HIGH COURT IN MITESH ROLLING MILLS P LTD. VS. CIT 258 ITR 278(GUJ ) AS EXTRACTED IN THE ORDER DATED 3.3.2006 WHICH THE LD. CIT(A) DID NOT EVEN C ONSIDER IN THE IMPUGNED ORDER DESPITE SPECIFIC DIRECTIONS AS ALSO IN THE LIGHT OF OBSERVATIONS OF THE APEX COURT IN SMT. P. K. NOORJAHAN'S CASE [1999] 237 ITR 570 (SC) AND CIT V. BHARAT ITA NOS.1544 AND 1545/AHD/2007 22 ENGINEERING AND CONSTRUCTION CO. [1972] 83 ITR 187 (SC) WE ARE OF THE OPINION THAT ALTHOUGH AS A LEGAL PROPOSITION THE PROVISION S OF THE S. 68 DO APPLY TO EACH AND EVERY CREDIT ENTRY IN THE BOOKS OF ACCOUNT TO B E MAINTAINED BUT THE EXPLANATION OF THE ASSESSEE HAS TO BE CONSIDERED DE PENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CASE IN THEIR ENTIRETY. WHERE SOURCE FOR THE CREDIT IS IDENTIFIED BY THE ASSESSEE HOWEVER THE SATISFACTI ON IS NOT PROVED BY SUCH PERSONS THE ATTENDANT CIRCUMSTANCES NAMELY THE ABS ENCE OF ANY COMMERCIAL ACTIVITY IS A FACTOR WHICH CANNOT BE SAID TO BE DE HORS WHILE EXERCISING THE DISCRETION OF MAKING AN ADDITION IN TERMS OF S. 68. IN THE INSTANT CASE WE FIND THAT THERE IS NO DENYING THE FACT THAT CERTAIN AMOUNTS H AVE BEEN RECEIVED BY THE ASSESSEE AS SHARE CAPITAL OR AS LOAN CREDITS BEFORE THE START OF ITS COMMERCIAL OPERATIONS OR EVEN IMMEDIATELY THEREAFTER AND CONF IRMATIONS OF SUCH SHAREHOLDERS AND CREDITORS WAS PLACED BEFORE THE AO AND THERE BEING NO MATERIAL ON RECORD THAT SUCH AMOUNTS WERE INCOME OF THE COM PANY FOR THE YEAR UNDER CONSIDERATION WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION MADE U/S 68 OF THE ACT IN R ESPECT OF THOSE CREDITORS WHOSE CONFIRMATIONS WERE PLACED BEFORE THE AO. 11. IN VIEW OF THE FOREGOING OUT OF IMPUGNED AD DITION OF RS. 32 56 138/- ADDITION OF RS. 1 39 000/- IN THE NAME OF YUNUS S HARIF & RS. 69 000/- IN THE NAME OF AYUB MOHID HUSAIN WHOSE CONFIRMATIO NS OR EVEN DATE WHEN AMOUNT WAS BROUGHT IN OR THE NATURE OF R ECEIPT OR ANY MATERIAL/EVIDENCE IN RESPECT OF SOURCES OF THE AMO UNT HAVE NOT BEEN PLACED BEFORE US IS CONFIRMED WHILE THE REMAI NING IS DELETED. 12. AS REGARDS GROUND NO. 2 RELATING TO LEVY OF INTEREST U/S 234A 234B AND 234C OF THE ACT THE LD. AR ON BEHALF OF THE ASSESS EE DID NOT MAKE ANY SUBMISSIONS ON THIS GROUND. THE LEVY OF INTEREST U /S 234A 234B & 234C OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX. VS ANJUM M. H. GHASWALA AND OTHERS 252 ITR 1(SC) AFFIRMED BY HON'BLE APEX COURT IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ] THIS GROUND IS DISMISSED. ITA NOS.1544 AND 1545/AHD/2007 23 HOWEVER THE AO MAY ALLOW CONSEQUENTIAL RELIEF IF ANY WHILE GIVING EFFECT TO THIS ORDER. 13. AS REGARDS GROUND NO.3 IN THE APPEAL SINCE NO APPEAL LIES AGAINST MERE INITIATION OF PENALTY PROCEEDINGS NOR ANY SUBMISSI ONS HAVING BEEN MADE BEFORE US ON THIS GROUND WE HAVE NO ALTERNATIVE BUT TO RE JECT THE SAID GROUND 14. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF THE RESIDUARY GROUND THIS GROUND IS ALSO DISMISSED ITA NO.1545/AHD/2007: 15. IN THIS APPEAL FILED BY THE ASSESSEE AGAIN ST AN ORDER DATED 30-11-2006 OF THE LD. CIT(A) FOLLOWING GROUND HAS BEEN RAISED: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING PENALTY LEVIED U/S 271(1)(C) BY AO OF RS.23 29 404/- ON THE ADDITI ON OF CASH CREDIT U/S 68 OF THE ACT THAT IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS AND AS SUCH WHEN THE APPELLANT HAS DISCHARGED THE ONUS OF HAVIN G ESTABLISHED THE GENUINENESS OF THE TRANSACTION BY SUBMITTING THE ID ENTITY AND CONFIRMATION OF THE DEPOSITORS. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAS NEITHER FURNISHED INACC URATE PARTICULARS NOR CONCEALED ANY INCOME AND HELD THAT SIMPLY BECAUSE A DDITION IS SUSTAINED PENALTY IS LEVIABLE. THE PENALTY LEVIED BEING WITHO UT ANY MERITS AND JUSTIFICATION REQUIRES TO BE QUASHED. 16. FACTS IN BRIEF HAVE ALREADY BEEN NARRATED IN THE QUANTUM APPEAL AS AFORESAID. WHILE COMPLETING THE ASSESSMEN T VIDE ORDER DATED 29.1.2004 THE AO ADDED THE FOLLOWING TWO A MOUNTS U/S 68 OF THE ACT:- 1. INVESTMENT IN SHARE CAPITAL RS.67300 0/- BY THE AGRICULTURISTS NOT TREATED AS GENUINE 2. INVESTMENT IN SHARE CAPITAL RS.33781 38/- BY OTHERS TREATED AS CASH CREDIT ----------------- RS.4051138/- ITA NOS.1544 AND 1545/AHD/2007 24 INTER ALIA THE AO INITIATED PENALTY PROCEEDINGS U/ S 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE FURNISHED INAC CURATE PARTICULARS OF INCOME IN RESPECT OF THE AFORESAID T WO AMOUNTS. AFTER DISMISSAL OF APPEAL OF THE ASSESSEE BY THE LEARNED CIT(A)-I SURAT VIDE HIS ORDER NO. CIT(A)/VLS/339/03-04 DATED 8-12- 2004 IN RESPONSE TO A SHOWCAUSE NOTICE BEFORE LEVY OF PENAL TY THE ASSESSEE VIDE THEIR LETTER DATED 18-2-2005 REPLIED AS UNDER :- AS REGARDS ADDITION OF RS.673000/- WE HAVE TO STA TE THAT THERE ARE LOANS AND SHARE DEPOSITORS FROM THE CONFIRMATION AND EVID ENCES PRODUCED IT IS PROVED THAT THE DEPOSITORS ARE GENUINE THEIR IDENT ITY IS ALSO PROVED. THE DISBELIEVING THE EXPLANATION AND TAKING THE SAME U/ S.68 WOULD NOT AMOUNT TO FURNISHING CONCEALING THE PARTICULARS OF INCOME OR FILING INACCURATE PARTICULARS OF INCOME. THE ONUS IS DISCHARGED BY US . AS REGARDS ADDITION OF RS.1727500/- THE DEPOSITORS WERE EXAMINED BY THE AC IT ON SUMMONS AND THEY HAVE CATEGORICALLY CONFIRMED THE SHARE DEP OSITS. THUS THE IDENTITY OF THE LENDER HAVE BEEN PROVED. THEY HAVE PURCHASED THE SHARES OF THE COMPANY. THEY HAVE ACCEPTED THE POSITION AND ACTED AS MEMBER. AS REGARDS ADDITION OF RS.855550/- THE DEPOSITS COULD NOT BE PRODUCED IN PERSONS AS 10 YEARS HAVE LAPSED. HOWEVER THEY HAVE CONFIRMED THAT THEY HAVE GIVEN THE DEPOSIT FOR PURCHASE OF SHARE AND SH ARES CERTIFICATES HAVE BEEN ISSUED. THEIR IDENTITY IS PROVED BY CONFIRMATI ON THEY HAVE FILED. THEY HAVE ACCEPTED THE POSITION. AS REGARDS ADDITION OF RS.795000/- WE HAVE CONCEDED THE ADDITION AT APPEAL STAGE FOR PEACE. 17. IN THE LIGHT OF AFORESAID REPLY ON BEHAL F OF THE ASSESSEE THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND LE VIED A PENALTY OF RS. 23 29 404/- U/S 271(1)(C) OF THE ACT ON THE G ROUND THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME THE ASS ESSEE HAVING NOT DISCHARGED THE ONUS EITHER DURING THE ASSESSMENT PROCEEDINGS AND EVEN DURING THE PENALTY PROCEEDINGS IN RESPECT OF GENUINENESS OF THE TRAN SACTIONS AND CREDITWORTHINESS OF THE CREDITORS/ SHAREHOLDERS IN RESPECT OF AMOUN T OF RS.40 51 138/-. 18. ON APPEAL THE ASSESSEE CONTENDED THAT THE DEPOSITS OF RS.6 73 000/- WERE GENUINE THE DEPOSITORS HAVING C ONFIRMED THE SAME AND THEIR IDENTITY IS ALSO PROVED. THE ASSESSE E FURTHER EXPLAINED THAT THE SHARE DEPOSIT AMOUNTS OF RS.17 2 7 500 & RS. 8 55 550/- WERE CONFIRMED BY THE SHAREHOLDERS.THE S HARE HOLDERS FOR AN AMOUNT OF RS.8 55 550/- COULD NOT BE PRODUCE D IN PERSON AS ITA NOS.1544 AND 1545/AHD/2007 25 13 YEARS HAD ELAPSED. SINCE THE DEPOSITS WERE CONFI RMED THERE WAS NO ROOM FOR PENALTY OF RS.23 29 404/- AND THE SAME MAY BE DELETED THE ASSESSEE PLEADED.HOWEVER THE LD. CIT(A) REJECT ED THE CONTENTIONS OF THE ASSESSEE IN THE FOLLOWING TERMS : 5.3 IT IS OBVIOUS FROM THE ABOVE THAT EVEN WHEN TH E OPPORTUNITY GIVEN AT THE REMAND REPORT STAGE THE APPELLANT HAS NOTHING NEW TO OFFER BY WAY OF EVIDENCE EXCEPT WHAT HAS ALREADY BEEN FILED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH WERE REJECTED AFTER DETAILED EXAMINATION BY THE THEN ASSESSING OFFICER. THE AO H AS RIGHTLY POINTED OUT THAT THE APPELLANT'S PLEA THAT IT IS A MATTER THAT IS 13 YEARS OLD AND THEREFORE HE DOES NOT HAVE THE RELEV ANT INFORMATION IS AN INSUPPORTABLE ARGUMENT AS THE ONUS TO PROVE T HE GENUINENESS OF THE UNEXPLAINED LOANS/SHARE DEPOSITS IS UPON THE APPELLANT. IT IS QUITE CLEAR THAT THE ONUS TO PROVE ITS CASE IS UPON THE APPELLANT AS THE APPELLANT IS IN APPEAL AND NOT THE DEPARTMENT. THEREFORE IN THE INSTANT CASE THE APPELLANT HAD FAILED TO DISCHARGE HIS ONUS. IN THAT CASE IT WOULD NOT BE UNFAIR TO CONCLUDE THAT THE AP PELLANT HAS FAILED TO PROVE THAT THE UNEXPLAINED LOANS/SHARE DEPOSITS ARE GENUINE. 5.4 ONE CAN CLEARLY INFER FROM THE FACTS STATED ABO VE THAT THERE IS NO MERIT IN THE APPELLANT'S ARGUMENT THAT THE DEPOSITO RS NOW REFUSED TO GIVE DETAILS AS THEY THINK IT IS A 'PRIVATE MATTER' . IT WAS HELD IN THE QUANTUM APPEAL ORDER THAT THE AO HAS RIGHTLY MADE T HE ADDITION AFTER PLACING HER RELIANCE ON THE DECISION OF HON'B LE COURTS WHERE IN A RATIO HAS BEEN LAID DOWN THAT IT IS FOR THE ASSE SSEE TO ESTABLISH THE GENUINENESS OF ALL THE DEPOSITS HI HIS BOOKS. H ON'BLE GUJARAT HIGH COURT IN THE CASE OF BOMIN P. LTD. V/S. CIT 16 0 ITR 477 HAS RULED OUT THAT THAT SECTION 68 ENJOINS THE ASSESSEE TO OFFER AN EXPLANATION ABOUT NATURE AND SOURCE OF ANY SUM FOUN D CREDITED IN THE BOOKS OF ACCOUNTS FOR ANY PREVIOUS YEAR. AND IF THERE IS NO EXPLANATION OR IF THE EXPLANATION IS UNSATISFACTORY HI THE OPINION OF ASSESSING OFFICER THE SUM SO CREDITED IS TO BE TRE ATED AS INCOME AND BROUGHT TO TAX ACCORDINGLY. THE ASSESSEE HAS TO PROVE THE IDENTITY OF THE CREDITOR CREDIT WORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. IT HAS BEEN RIGHTLY HELD THAT ANY TRANSACTION EVEN THOUGH BANK IS NOT CONCLUSIVE EVID ENCE ABOUT ITS GENUINENESS. AS HELD BY THE HON'BLE CALCUTTA HIGH C OURT IN THE CASE OF M/S. PRECISION FINANCE P. LTD. 208 ITR 465 LOANS THROUGH BANK ALSO CANNOT BE ACCEPTED AS GENUINE UNLESS THE IDENTITY AND CREDIT WORTHINESS OF THE CREDITOR IS ESTABLISHED AN D GENUINENESS OF THE TRANSACTION IS PROVED. 5.5 SINCE THE APPELLANT HAD FAILED TO ESTABLISH GEN UINENESS OF THE TRANSACTIONS AND PROVE WORTHINESS OF THE CREDITORS THE ADDITION WAS MADE AS THE APPELLANT FAILED TO DISCHARGE ITS ONUS. THE AO THEREFORE HAD REASONS TO BELIEVE THAT CASH CREDIT O F RS.40 51 138/- IS NOTHING BUT INCOME OF THE ASSESSEE WHICH HAS BE EN CREDITED IN ITA NOS.1544 AND 1545/AHD/2007 26 THE GUISE OF BOGUS CASH CREDITS WITHOUT MAKING PAYM ENT OF TAXES THEREON. THE AO THEREFORE IMPOSED PENALTY AFTER HAV ING BEEN SATISFIED IN CONCLUDING THAT THE APPELLANT HAD FILE D INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALED THE INC OME AND THEREFORE MINIMUM PENALTY OF RS.23 29 404/-WAS IMP OSED. 5.6 DURING THE APPELLATE PROCEEDINGS THE AR ARGUED BEFORE ME THAT THE APPELLANT HAD FILED CONFIRMATIONS AND AFFIDAVIT FRO M THE DEPOSITORS. THE AR ALSO ARGUED THAT THE APPELLANT HAD FILED PRO OFS FOR IDENTITY OF THESE DEPOSITORS AND SHARE DEPOSITORS. THE AR FURTH ER ARGUED THAT IT IS NOT OPEN TO THE AO TO LEVY PENALTY ONLY BECAU SE ADDITION IS SUSTAINED. THE AR ALSO ARGUED THAT THE AO SHOULD HA VE PROVED POSITIVE ACT OR DELIBERATE ACT OF BIDING OR HOLDING SOMETHING BACK. MERELY BECAUSE THE CASH CREDITS ARE DISBELIEVED NO PENALTY CAN BE IMPOSED. THE AO SHOULD HAVE BROUGHT OUT ON RECORD T HAT THE APPELLANT'S OWN UNACCOUNTED MONIES WERE INTRODUCED IN THE GUISE OF CASH CREDITS AND SHARE DEPOSITS. THE AR ARGUED T HAT THE AO HAS NOT APPRECIATED THESE FACTS AND IMPOSED PENALTY. PE NALTY CAN NOT BE IMPOSED ONLY BECAUSE IT IS LAWFUL TO DO SO. ACCO RDING TO THE AR IT IS A MATTER OF BELIEVING OR NOT BELIEVING THE EXPLA NATION OFFERED BY THE APPELLANT AND NOT ADDUCING ANY EVIDENCES AGAINS T THE APPELLANT. THE AR CONTENDED THAT THE APPELLANT'S CA SE IS NOT A FIT CASE FOR LEVYING THE CONCEALMENT PENALTY AS THE MAT TER INVOLVES APPRECIATION OR OTHERWISE OF THE EVIDENCES FILED AN D PLACED ON RECORD. 5.7 I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLAN T AS WELL AS THE OBSERVATION OF THE AO IN THE PENALTY ORDER. ON THE BASIS OF THE ABOVE FACTUAL MATRIX OF THE CASE I AM OF THE CONSI DERED VIEW THAT THE AO IS JUSTIFIED IN IMPOSING PENALTY OF RS.23 29 404/- AS THE APPELLANT HAS GROSSLY FAILED TO DEFEND THE QUANTUM ADDITION BY FILING CREDIBLE EVIDENCES. THE APPELLANT HAS FAILED TO DIS CHARGE THE ONUS CAST UPON IT IN PROVING THE GENUINENESS OF THE TRAN SACTIONS AND IN PROVING THE WORTHINESS OF THE DEPOSITORS. IT IS DEF INITELY A CASE WHERE IN THE CONCLUSIVE ANALYSIS OF FACTS DO SUGGES T THAT THE APPELLANT HAD INTRODUCED CERTAIN CASH CREDITS AND S HARE DEPOSITS AND UNSECURED LOANS WHICH WERE LATER ON NOT SUBSTA NTIATED OR EXPLAINED-BY IT. IT VERY WELL GOES TO LEAD AN EVIDE NCE TO THE EFFECT THAT THE WHAT APPELLANT DID HAVE AS A CASH CREDIT O F RS.40 51 138/- IS NOTHING BUT INCOME OF THE APPELLANT WHICH HAS B EEN CREDITED IN THE GUISE OF BOGUS CASH CREDITS WITHOUT MAKING PAYM ENT OF TAXES THEREON. AFTER CONSIDERING THE TOTALITY OF FACTS I AM SATISFIED THAT THE AO HAS RIGHTLY IMPOSED PENALTY U/S. 271(L)(C) OF TH E ACT IN CASE OF THE APPELLANT. THE APPELLANT'S GROUND NO-1 AND 5 AR E DISMISSED. 6. IN GROUND NO.3 AND 4 THE APPELLANT HAS RAISED S UCH CONTENTION THAT THE DEPOSITORS HAVE CONFIRMED THE DEPOSIT OF RS.6 7 3 000/- AND SHARE DEPOSITORS HAVE CONFIRMED THE SHARE DEPOSITS OF RS.17 27 500/-. THE APPELLANT CONTENTED THAT THESE DEPOSITORS ARE IDENTIFIED AND THEY HAVE CONFIRMED THEIR DEPOSITS. ITA NOS.1544 AND 1545/AHD/2007 27 6.1. THE GROUND NO. 3 AND 4 STATED ABOVE HAVE MORE RELEVANCE IN THE QUANTUM APPEAL AND HAVE BEEN SEPARATELY DEALT WITH WHILE DECIDING THE QUANTUM APPEAL. THESE GROUNDS DO NOT FIND PLACE IN AN APPEAL AGAINST THE ORDER PASSED U/S. 271(L)(C) WHICH HAS BEEN IDENTIFIED AS A SEPARATE INDEPENDENT PROCEEDINGS UNDER THE ACT. S INCE THESE GROUNDS HAVE FACTUAL RELEVANCE WITH THE QUANTUM APP EAL THESE GROUNDS ARE SUMMARILY REJECTED. THE APPELLANT'S GRO UNDS NO.3 AND 4 ARE DISMISSED. 19. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WHILE RELYING UPON THE DECISION OF THE HONBLE GUJARAT HI GH COURT IN THE CASE OF NATIONAL TEXTILES V CIT 249 ITR 125 (GUJ) A ND JUDGMENT DATED 17.3.2010 OF THE HON'BLE SUPREME COURT IN CIT VS. RELIANCE PETRO PRODUCTS ARISING OUT OF SLP (C) NO.27161 OF 2008 CONTENDED THAT NO PENALTY CAN BE LEVIED IN THIS CASE ON ACCOUNT OF AD DITION U/S 68 OF THE ACT. ON THE OTHER HAND THE LEARNED DR SUPPORT ED THE FINDINGS OF THE CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. AT T HE OUTSET WE MAY POINT OUT THAT IN AN APPEAL AGAINST QUANTUM ADDITIO N IN ITA NO 1544/AHD./2007 WE HAVE REDUCED THE ADDITION OF R S. 32 56 138 /- TO RS.2 08 000/- SINCE IN RESPECT OF THE AMOUNT OF RS. 1 39 000/- IN THE NAME OF YUNUS SHARIF & RS. 69 000/- IN THE NAME OF AYUB MOHID HUSAIN THEIR CONFIRMATIONS OR EVEN DATE WHEN AMOUN T WAS BROUGHT IN OR NATURE OF RECEIPT AND ANY MATERIAL/EVIDENCE IN RESPECT OF SOURCES OF THE AMOUNT HAVE NOT BEEN PLACED BEFORE US. IN THESE CIRCUMSTANCES SINCE THE ADDITION TO THE EXTENT OF RS.30 48 138 FORMING THE BASIS FOR LEVY OF PENALTY HAS BEEN DELETED BY US VIDE OU R AFORESAID ORDER PENALTY LEVIED BY THE AO DOES NOT SURVIVE IN RELATION TO THE SAID AMO UNT. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. R.DALMIA (1992)107 TAXATION 107 HELD THAT NO PENALTY SURVIVES AFTER DELETION OF ADDITIONS FORMING THE BASIS FOR THE LEVY OF PENALTY. HONBLE SUPREME COURT IN THE CASE OF K.C.BUILDERS VS. ACIT 265 ITR 562(SC) HELD THAT ORDINARILY PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SE T ASIDE. WHERE AN ORDER OF ITA NOS.1544 AND 1545/AHD/2007 28 ASSESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PE NALTY HAS BEEN LEVIED ON THE ASSESSEE HAS ITSELF BEEN FINALLY SET ASIDE OR CANC ELLED BY THE TRIBUNAL OR OTHERWISE THE PENALTY CANNOT STAND BY ITSELF AND THE SAME IS LIABLE TO BE CANCELLED. ACCORDINGLY PENALTY IN RELATION TO THE AFORESAID AMOUNT OF RS. 30 48 138/- IS CANCELLED SINCE THE VERY BASIS UPON WHICH THE PENALTY HAS BEEN IMPOSED DOES NOT EXIST IN VIEW OF OUR AFORESAID ORDER IN ITA NO.1544/AHD./2007 . 21. AS REGARDS PENALTY IN RELATION TO THE AMOU NT OF RS. 7 95 000/- ON ACCOUNT OF INVESTMENT IN THE NAME OF FOUR MINORS SURRENDERED BEFORE THE LD. CIT(A) AS POINTED OUT IN HIS ORDER DATED 8.12.2004 AND ON THE AFORESAID AMOUNT OF RS. 2 08 000/- COMPR ISING RS. 1 39 000/- IN THE NAME OF YUNUS SHARIF & RS. 69 000 /- IN THE NAME OF AYUB MOHID HUSAIN THE ASSESSEE MERELY SUBMITTED A GENERAL REPLY THAT THEY HAVE DISCHARGED THE ONUS LAID DOWN UPON THEM. AS REGARDS THE AMOUNT OF RS. 2 08 000/- IT HAS MERELY BEEN SUBMITTED THAT IT WAS ON ACCOUNT OF THEIR AGRICULTURAL INCOME NEITHER THE DATE NOR ANY EVIDENCE IN RESPECT OF SOURCE OF AMOUNT I S ON RECORDS NOR THIS HAS BEEN PLACED EITHER BEFORE THE AO/CIT(A) I N ASSESSMENT AND PENALTY PROCEEDINGS NOR EVEN BEFORE US. REGARDI NG AMOUNT OF RS. 7 95 000/- IN THE NAME OF MINORS IT WAS PLEADE D THAT THIS WAS SURRENDERED IN ORDER TO BUY PEACE. THE SURRENDER OF AN AMOUNT RELATING TO THE AY 1993-94 IN THE SECOND ROUND OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A) BY NO STRETCH OF IMAGINATION CAN BE SAID TO BE TO BUY PEACE. WHAT IS THE BASIS AND MATERIAL FOR SUCH AN E XPLANATION HAS NOT BEEN EXPLAINED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE WHO MERELY RELIED UPON A DECISION OF THE HONBLE GUJRAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES(SUPRA) IN SUPPORT OF THEIR CONTENTIONS TH AT NO PENALTY CAN BE LEVIED IN RESPECT OF AN AMOUNT ADDED U/S 68 OF THE ACT. WE AR E NOT CONVINCED BY THIS PLEA ON BEHALF OF THE ASSESSEE. IN TERMS OF PROVISIONS OF SEC. 271(1)(C) OF THE ACT READ WITH EXPLANATION 1 THERETO AND THE JUDICIAL PR ONOUNCEMENTS IN THE CASE OF B.A. BALASUBRAMANIAM & BROS. CO. V. CIT [1999] 157 CTR 556(SC) CIT V. B.A. BALASUBRAMANIAM & BROS. [1984] 40 CTR (MAD.)/[1985] 152 ITR 529 (MAD.) CIT V. MUSSADILAL RAM BHAROSE [1987] 60 CTR (SC) 34/[ 1 987] 165 ITR 14 (SC); TC ITA NOS.1544 AND 1545/AHD/2007 29 50 R. 474; CIT V. K.R. SADAYAPPAN [1990] 86 CTR (SC ) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795 ADDL. CIT V. JEEVAN LAL SAH [19 94] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 AND K.P.MADHUSUDANAN VS. CIT 251 ITR 99(SC) IT IS WELL ESTABLISHED THAT WHENEVER TH ERE IS DIFFERENCE BETWEEN THE RETURNED AND ASSESSED INCOME THERE IS INFERENCE OF CONCEALMENT. THE EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT RAISES A PRESUMPTION THAT CAN BE REBUTTED BY THE ASSESSEE WITH REFERENCE TO FACTS OF THE CASE. THUS THE ONUS IS ON THE ASSESSEE TO REBUT THE INFERENCE OF CONCEALMENT. THE ABSENCE OF EXPLANATION ITSELF WOULD ATTRACT PENALTY. THE EXPLANATION OFFER ED BY THE ASSESSEE SHOULD NOT BE FALSE. THE ONUS LAID DOWN UPON THE ASSESSEE TO REBUT THE PRESUMPTION RAISED UNDER EXPLANATION 1 WOULD NOT BE DISCHARGED BY ANY FANTASTIC OR FANCIFUL EXPLANATION. IT IS NOT THE LAW THAT ANY AND EVERY E XPLANATION HAS TO BE ACCEPTED WHILE MERE OFFER OF INCOME BY THE ASSESSEE CAN NOT JUSTIFY CANCELLATION OF PENALTY. UNDISPUTEDLY NO COGENT EXPLANATION HAS BEEN GIVEN ON ACCOUNT OF DIFFERENCE OF RS. 7 95 000+ 2 08 000=10 03 000/- BETWEEN THE RETU RNED AND ASSESSED INCOME AND THUS ONUS LAID DOWN UPON THE ASSESSEE IN TERMS OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT REMAINS UNDISCHARGED. EVEN OTH ER WISE EXPLANATION OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THAT THE AMOUNT OF DEPOSIT OF RS. 2 08 000/-WAS OUT OF AGRICULTURAL INCOME OF THE CR EDITORS HAS NOT BEEN SUBSTANTIATED NOR IT WAS BONAFIDE AND THERE IS NO EVIDENCE ON RECORD IN THIS BEHALF. THERE IS NOTHING TO SUGGEST THAT THE ASSESS EE DISCHARGED THEIR ONUS EVEN DURING PENALTY PROCEEDINGS. IN NUTSHELL EXCEPT MA KING GENERAL STATEMENTS REGARDING DISCHARGING OF ONUS WITHOUT EVEN SUBMITTI NG THE BASIC DETAILS EITHER DURING THE ASSESSMENT PROCEEDINGS OR EVEN IN PENA LTY PROCEEDINGS NO ACCEPTABLE EXPLANATION HAS BEEN FURNISHED BEFORE TH E AO OR BEFORE THE LEARNED CIT(A) DURING THE COURSE OF APPELLATE PROCEEDINGS I N RESPECT OF THE AFORESAID AMOUNT OF RS.10 03 000/- WHILE THERE IS NO MATER IAL BEFORE US TO TAKE A CONTRARY VIEW IN THE MATTER. THUS IT CANNOT BE SAID THAT IN SUCH A CASE THERE COULD BE NO SCOPE FOR SAYING THAT THE ASSESSEE IS GUILTY OF FUR NISHING OF INACCURATE PARTICULARS OF INCOME OF RS. 10 03 000/-. WARRANTING PENALTY U NDER SECTION 271(1)(C) OF THE ACT. ITA NOS.1544 AND 1545/AHD/2007 30 21.1 THE EXPRESSION 'HAS CONCEALED THE PARTICULAR S OF INCOME' AND 'HAS FURNISHED INACCURATE PARTICULARS OF INCOME' HAVE NO T BEEN DEFINED EITHER IN SECTION 271 OR ELSEWHERE IN THE ACT. HOWEVER NOTWI THSTANDING THE DIFFERENCE IN THE TWO CIRCUMSTANCES IT IS NOW WELL ESTABLISHED T HAT THEY LEAD TO THE SAME EFFECT NAMELY KEEPING OFF A CERTAIN PORTION OF THE INCOME FROM THE RETURN. ACCORDING TO LAW LEXICON THE WORD 'CONCEAL' MEANS: 'TO HIDE OR KEEP SECRET. THE WORD 'CONCEAL' IS C ON+CELARE WHICH IMPLIES TO HIDE. IT MEANS TO HIDE OR WITHDRAW FROM OBSERVATION; TO C OVER OR KEEP FROM SIGHT; TO PREVENT THE DISCOVERY OF ; TO WITHHOLD KNOWLEDGE OF . THE OFFENCE OF CONCEALMENT IS THUS A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOM E OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TAX AUTHORITIES.' IN WEBSTER'S DICTIONARY 'INACCURATE' HAS BEEN DEFI NED AS : 'NOT ACCURATE NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS ; AS AN INACCURATE STATEMENT COPY OR TRANSCRIPT.' 21.2 HERE WE MAY REFER TO A DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF K.P.MADHUSUDANAN VS. CIT 251 ITR 99(SC) WHEREIN IT WAS HELD THAT WE FIND IT DIFFICULT TO ACCEPT AS CORRECT THE TWO JUDGMENTS AFOREMENTIONED. THE EXPLANATION TO SECTION 271(1)(C) IS A PART OF SECTI ON 271. WHEN THE INCOME-TAX OFFICER OR THE APPELLATE ASSISTANT COMMISSIONER ISS UES TO AN ASSESSEE A NOTICE UNDER SECTION 271 HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THESE PROVISIONS INCLUDE TH E EXPLANATION. BY REASON OF THE EXPLANATION WHERE THE TOTAL INCOME RETURNED BY THE ASSESSEE IS LESS THAN 80 PER CENT. OF THE TOTAL INCOME ASSESSED UNDER SECTIO N 143 OR 144 OR 147 REDUCED TO THE EXTENT THEREIN PROVIDED THE ASSESSEE IS DEE MED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS THEREOF UNLESS HE PROVES THAT THE FAILURE TO RETURN THE CORRECT INCOM E DID NOT ARISE FROM ANY FRAUD OR NEGLECT ON HIS PART. THE ASSESSEE IS THEREFORE BY VIRTUE OF THE NOTICE UNDER SECTION 271 PUT TO NOTICE THAT IF HE DOES NOT PROVE IN THE CIRCUMSTANCES STATED IN THE EXPLANATION THAT HIS FAILURE TO RETURN HIS CO RRECT INCOME WAS NOT DUE TO FRAUD OR NEGLECT HE SHALL BE DEEMED TO HAVE CONCEALED TH E PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF AND CONSE QUENTLY BE LIABLE TO THE PENALTY PROVIDED BY THAT SECTION. NO EXPRESS INVOCA TION OF THE EXPLANATION TO SECTION 271 IN THE NOTICE UNDER SECTION 271 IS IN OUR VIEW NECESSARY BEFORE THE PROVISIONS OF THE EXPLANATION THEREIN ARE APPLIED. THE HIGH COURT AT BOMBAY WAS THEREFORE IN ERROR IN THE VIEW THAT IT TOOK AND TH E DIVISION BENCH IN THE IMPUGNED JUDGMENT WAS RIGHT. ITA NOS.1544 AND 1545/AHD/2007 31 21.3 MOREOVER IT IS A SETTLED LAW THAT IN ECONO MIC OFFENCES THE STATUTORY LIABILITY TO PAY EITHER DUTY OR TAX IS NOTHING BUT A STRICT L IABILITY WHERE THE QUESTION OF PROVING BEYOND THE SHADOW OF DOUBT ONE'S EXISTENCE OF BONA FIDE BELIEF THAT AMOUNT IS NOT TAXABLE DOES NOT ARISE. IT GOES WITHO UT SAYING THAT ANY VIOLATION OF THE LAW OR RULES RELATING TO ECONOMIC OFFENCES EIT HER RELATING TO THE PAYMENT OF DUTY OR TAX AS THE CASE MAY BE THE THEORY OF MENSR EA IS NOT ATTRACTED. IN SUCH MATTERS THE RULES OF INTERPRETATION CONTEMPLATE A STRICT INTERPRETATION RATHER THAN A LIBERAL AND WIDER INTERPRETATION. THE BREACH OF C IVIL OBLIGATION WHICH ATTRACTS A PENALTY UNDER THE PROVISIONS OF AN ACT WOULD IMMEDI ATELY ATTRACT THE LEVY OF PENALTY IRRESPECTIVE OF THE FACT WHETHER THE CONTRA VENTION WAS MADE BY THE DEFAULTER WITH ANY GUILTY INTENTION OR NOT VIDE CH AIRMAN SEBI V. SHRIRAM MUTUAL FUND [2006] 131 COMP CASES 591 (SC) ; [2006] 5 SCC 361. THIS VIEW HAS BEEN REITERATED BY THE HONBLE SUPREME COURT IN THEIR DE CISION DATED 29.9.2008 IN THE CASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA T EXTILE PROCESSORS AND OTHERS IN CIVIL APPEAL NOS.10289 -10303 OF 2003 N OW REPORTED IN 306 ITR 227 (SC) 21.4 IN COMMISSIONER OF INCOME TAX.VS P. K. NARAYANAN. 238 ITR 905(KERALA) IT WAS HELD THAT SO FAR AS THE LEGAL PROPOSITION IS CONCERNED THER E CANNOT BE TWO OPINIONS THAT UNDER EXPLANATION 1 A PRESUMPTION WILL ARISE THAT IF ANY ADDITION MADE BY THE ASSESSING OFFICER IS SUSTAINED BY THE APPELLATE AUT HORITY THEN THAT WILL REPRESENT THE CONCEALED INCOME OF AN ASSESSEE AND THE ONUS WI LL BE ON THE ASSESSEE TO REBUT THE PRESUMPTION. A PRESUMPTION UNDER EXPLANAT ION 1 IS OBVIOUSLY AVAILABLE WHEN AN ASSESSEE FAILS TO OFFER AN EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER TO BE FALSE OR IF TH E ASSESSEE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO P ROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. SO FAR AS THE ONUS IS CONCERNED WE HAVE ALREADY PO INTED OUT THAT UNDER EXPLANATION 1 ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE APPELLATE AUTHORITIES WILL REPRES ENT THE CONCEALED INCOME OF THE ASSESSEE PROVIDED NO EXPLANATION IS FURNISHED OR T HE EXPLANATION FURNISHED IS FOUND TO BE FALSE OR THE ASSESSEE IS NOT ABLE TO SU BSTANTIATE THE EXPLANATION OR THE EXPLANATION IS NOT BONA FIDE. ITA NOS.1544 AND 1545/AHD/2007 32 21.5 IN THE INSTANT CASE SINCE THE ASSESSEE FAI LED TO ESTABLISH THE SOURCE OF THE AFORESAID AMOUNT OF RS. 7 95 000/- A ND ACCORDINGLY SURRENDERED THE AMOUNT AFTER MORE THAN 10 YEARS OF FILING OF THE RETURN WHILE IN RESPECT OF AMOUNT OF RS. 2 08 000/ THE ASSESSEE FAILED TO SUBSTANTIATE THEIR EXPLANATION DURING THE ASSESSMENT PROCEEDINGS AND EVEN DURING PENALTY PROCEEDINGS AND THE ADDITION HAVING BEEN SUSTAINED BY US APPARENTLY EXPLANATION 1 TO SEC. 271(1)(C) IS ATTRACTED AND THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS LAID DOWN UNDER THIS EXPLANATION. 21.6 IN THE CASE OF CIT V. GANPATRAI GAJANAND [1977] 108 ITR 403 (ORI.) THE ASSESSING OFFICER ADDED A SUM FOUND CREDITED IN THE BOOKS OF THE ASSESSEE TO THIS INCOME BY REJECTING THE EXPLANATION OF THE ASS ESSEE UNSATISFACTORY. THE ASSESSING OFFICER ALSO IMPOSED PENALTY UNDER SECTIO N 271(1)(C). THE ORISSA HIGH COURT HELD THAT THERE IS NO DISTINCTION BETWEEN THE INCOME ARISING ON ACCOUNT OF SECTION 68 AND INCOME EARNED OTHERWISE. SECTION 68 DWELLS ON DEEMING PROVISION WHICH APPLIES WHEN THE ASSESSEE'S EXPLANATION IS RE JECTED AS UNSATISFACTORY. THE AMOUNT WHICH IS DEEMED TO BE INCOME BY OPERATION OF LAW IS ALSO INCOME TO WHICH PROVISIONS OF SECTION 271(1)(C) WILL APPLY. 21.7 IN THE CASE OF CIT V. PRATHI HARDWARE STORES [1993] 203 ITR 641 (ORI.) THE FACTS OF THE CASE WERE THAT THE CASH CREDITS OF RS. 20 000 WERE FOUND IN THE ASSESSEE'S ACCOUNTS IN THE NAME OF SHRI R.V.P. GANA PATHI RAO WHO ADMITTED TO HAVE ADVANCED THE LOAN AND EXPLAINED THAT THIS AMOU NT WAS SAVED OUT OF COMMISSION WHICH HE HAD EARNED AS COMMISSION AGENT. ACCORDING TO HIM THE SAID AMOUNT WAS NOT KEPT IN THE BANK BECAUSE OF AN APPREHENSION THAT IF THE FACTS OF HIS HAVING THE AMOUNT WAS KNOWN TO HIS BRO THER HE WOULD HAVE BEEN FORCED TO USE THE SAME IN HIS BROTHER'S BUSINESS WH ICH HE DID NOT WANT TO DO. THE AO DID NOT ACCEPT THE EXPLANATION AND TREATED THE A MOUNT AS ASSESSEE'S INCOME FROM UNDISCLOSED SOURCES BY THE APPLICATION OF SECT ION 68 OF THE ACT. PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED IN RESPECT O F THE SAID ADDITION. THE ADDITION MADE BY THE ITO WAS SUSTAINED BY THE AAC. THE AO IM POSED PENALTY OF RS. 10 000/- UNDER SECTION 271(1)(C) AFTER REJECTING TH E ASSESSEE'S EXPLANATION. IT WAS ITA NOS.1544 AND 1545/AHD/2007 33 CLAIMED BY THE ASSESSEE BEFORE THE ITO THAT THE CRE DITOR HAVING ADMITTED THE ADVANCE OF LOAN THE BURDEN PLACED ON IT HAS BEEN D ISCHARGED AND THEREFORE NO CASE FOR IMPOSITION OF PENALTY WAS MADE OUT. ON APP EAL AAC DELETED THE IMPOSITION OF PENALTY AND THE ITAT UPHELD HIS ORDER . THE ITAT OBSERVED THAT THE ASSESSEE DID NOT GO FURTHER IN APPEAL WHEN THE AAC CONFIRMED THE ADDITION OF RS. 20 000 AND ONE DOES NOT KNOW WHETHER THE SAID ADDIT ION WOULD HAVE BEEN CONFIRMED BEFORE THE TRIBUNAL. IT WAS FURTHER OBSER VED THAT DISBELIEVING THE EXPLANATION DOES NOT PROVE CONCEALMENT. AFTER CONSI DERING THE LEGISLATIVE HISTORY IN SO FAR AS SECTION 271(1)(C) IS CONCERNED AND FUR THER AMENDMENTS BROUGHT BY THE TAXATION LAWS (AMENDMENT) ACT 1975 AS WELL AS EXPLANATION INTRODUCED BY FINANCE ACT 1964 THE HON'BLE ORISSA HIGH COURT AT PAGE 647 HELD AS UNDER:- '...THE POSITION OF LAW ON OR AFTER APRIL 1 1976 I S THAT WHERE IN RESPECT OF ANY ITEM OF CREDIT (A) THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR (B) THE ASSESSEE OFFERS AN EXPLANATION WHICH THE TAXING OFFICER CONS IDERS TO BE FALSE OR (C) THE ASSESSEE OFFERS AN EXPLANATION BUT NO MATERIAL OR E VIDENCE TO SUBSTANTIATE IT HE SHALL BE DEEMED TO HAVE CONCEALED SUCH INCOME WITHI N THE MEANING OF SECTION 271(1)(C). WHAT SECTIONS 68 69 69A AND 69C DEEM F OR THE PURPOSE OF ASSESSMENT WAS INJECTED FOR THE PURPOSE OF THE PENA LTY BY OPERATION OF A DEEMED PROVISION. A PROVISO WAS ADDED TO THE NEW EXPLANATI ON. IT CONCERNS CASES WHERE THE ASSESSEE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE. CONSEQUENTLY THE PROVISION INTENDED TO SAVE SUCH A MOUNT FROM IMPOSITION OF PENALTY ALTHOUGH THE SAME HAD BEEN ADDED TO THE AS SESSEE'S EXPLANATION IS FOUND TO BE BONA FIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM.' THEIR LORDSHIPS FURTHER HELD AT PAGES 648 TO 650 AS UNDER: 'A CONSPECTUS OF THE EXPLANATION ADDED BY THE FINAN CE ACT 1964 AND THE SUBSEQUENT SUBSTITUTED EXPLANATION MAKES IT CLEAR T HAT THE STATUTE VISUALISED THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS TO B E WHOLE DISTINCT AND INDEPENDENT OF EACH OTHER. IN ESSENCE THE EXPLANAT ION (BOTH AFTER 1964 AND 1976) IS A RULE OF EVIDENCE. PRESUMPTIONS WHICH ARE REBUTTABLE IN NATURE ARE AVAILABLE TO BE DRAWN. THE INITIAL BURDEN OF DISCHA RGING THE ONUS OF REBUTTAL IS ON THE ASSESSEE. THE RATIONALE BEHIND THIS VIEW IS THA T THE BASIC FACTS ARE WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. SECTION 106 OF T HE INDIAN EVIDENCE ACT 1872 GIVES STATUTORY RECOGNITION TO THIS UNIVERSAL LY ACCEPTED RULE OF EVIDENCE. THERE IS NO DISCRETION CONFERRED ON THE ASSESSING O FFICER AS TO WHETHER HE CAN INVOKE THE EXPLANATION OR NOT. EXPLANATION I WHICH PRIMARILY CONCERNS THE CASE AT HAND AUTOMATICALLY COMES INTO OPERATION WHEN IN R ESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME OF ANY PERSON THER E IS FAILURE TO OFFER AN EXPLANATION OR AN EXPLANATION IS OFFERED WHICH IS F OUND TO BE FALSE BY THE ASSESSING OFFICER OR THE FIRST APPELLATE AUTHORITY OR AN EXPLANATION IS OFFERED ITA NOS.1544 AND 1545/AHD/2007 34 WHICH IS NOT SUBSTANTIATED. IN SUCH A CASE THE AMO UNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME IS DEEMED TO REPRESENT T HE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. AS PER THE P ROVISIONS OF EXPLANATION 1 THE ONUS TO ESTABLISH THAT THE EXPLANATION OFFERED WAS BONA FIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF HIS INCOME HAVE BEEN DISCLOSED BY HIM WILL BE ON THE PERSON CHARGED WITH CONCEALMENT. MERE FAILURE TO SUBSTANTIATE THE EXPLANATION IS NOT ENOUGH TO WARRA NT PENALTY. THE REVENUE HAS TO ESTABLISH THAT THE EXPLANATION OFFERED WAS NOT S UBSTANTIATED. THE PROVISION OF EXPLANATION 1 IS CONCERNED ONLY WITH CASES COMING U NDER CLAUSE (B) OF THE EXPLANATION WHERE THE ASSESSEE OFFERED AN EXPLANAT ION WHICH HE WAS NOT ABLE TO SUBSTANTIATE. THE EXPLANATION OF THE ASSESSEE FOR T HE PURPOSE OF AVOIDANCE OF PENALTY MUST BE AN ACCEPTABLE EXPLANATION; IT SHOUL D NOT BE A FANTASTIC OR FANCIFUL ONE. AS INDICATED ABOVE THE CONSEQUENCE FOLLOWS AS A MATTER OF LAW. THE BURDEN IS ON THE ASSESSEE. IF HE FAILS TO DISCHARGE THAT B URDEN THE PRESUMPTION THAT HE HAD CONCEALED THE INCOME OF FURNISHED INACCURATE PA RTICULARS THEREOF IS AVAILABLE TO BE DRAWN. THE PRINCIPAL LOGICAL IMPORT OF THE EXPLANATION IS TO SHIFT THE BURDEN OF PROOF FROM THE REVENUE ON TO THE ASSESSEE. THE REBUTTAL MUST B E ON MATERIALS RELEVANT AND COGENT. IT IS FOR THE FACT-FINDING BODY TO JUDGE TH E RELEVANCY AND SUFFICIENCY OF THE MATERIALS. IF SUCH A FACT-FINDING BODY BEARING THE AFORESAID PRINCIPLES IN MIND COMES TO THE CONCLUSION THAT THE ASSESSEE HAS DISCH ARGED THE ONUS IT BECOMES A CONCLUSION OF FACT AND NO QUESTION OF LAW ARISES . AS OBSERVED EARLIER THE INITIAL BURDEN IS ON THE ASSESSEE. ONCE THE INITIAL BURDEN IS DISCHARGED THE ASSESSEE WOULD BE OUT OF THE MISCHIEF UNLESS FURTHER EVIDENC E IS ADDUCED. IT IS PLAIN ON PRINCIPLE THAT IT IS NOT THE LAW THAT THE MOMENT AN Y FANTASTIC OR UNACCEPTABLE EXPLANATION IS OFFERED THE BURDEN PLACED WOULD BE DISCHARGED AND THE PRESUMPTION REBUTTED. AS POINTED OUT BY THE APEX CO URT IN MUSSADILAL RAM BHAROSE ( 165 ITR 14 ) THE BURDEN PLACED UPON THE ASSESSEE IS NOT DISCHA RGED BY ANY FANTASTIC EXPLANATION. IT MUST BE AN EXPLANATIO N ACCEPTABLE TO THE FACT-FINDING BODY. THE POSITION ON AND AFTER APRIL 1 1976 IS CLEAR TH AT WHERE IN RESPECT OF ANY ITEM OF CREDIT THE ASSESSEE HAD OFFERED AN EXPLANATION WHICH THE TAXING OFFICER HAS CONSIDERED TO BE FALSE OR THE ASSESSEE HAS OFFERED AN EXPLANATION BUT NOT MATERIAL OR EVIDENCE TO SUBSTANTIATE IT HE SHALL B E DEEMED TO HAVE CONCEALED SUCH INCOME WITHIN THE MEANING OF SECTION 271(1)(C) . A FURTHER CONDITION WAS IMPOSED WITH EFFECT FROM SE PTEMBER 10 1986 WITH WHICH WE ARE NOT CONCERNED. IN THE CASE AT HAND THE EXPL ANATION OF THE ASSESSEE SO FAR AS THE GENUINENESS OF CREDIT OF THE LENDER WAS CONC ERNED WAS NOT ACCEPTED. THE ASSESSEE'S APPEAL BEFORE THE AAC FAILED. IT WAS OBS ERVED THAT THE ASSESSEE OFFERED AN EXPLANATION BUT NO MATERIAL OR EVIDENCE TO SUBSTANTIATE THE SAME. THE TRIBUNAL CAME TO A PRESUMPTUOUS CONCLUSION THAT THE ASSESSEE MAY HAVE SUCCEEDED IN THE APPEAL HAD IT COME BEFORE THE TRIB UNAL AGAINST THE ADDITION. NO BASIS OR REASON HAS BEEN INDICATED FOR SUCH CONCLUS ION. A NARRATION OF FACTS WOULD GO TO SHOW THAT THE AAC AND THE TRIBUNAL DID NOT CONSIDER THE CASE OF THE ASSESSEE KEEPING IN VIEW THE NEW EXPLANATION 1 APPL ICABLE ON AND AFTER APRIL 1 1976. BY OPERATION OF THE EXPLANATION THE ONUS LAY ON THE ASSESSEE AND FINDINGS ITA NOS.1544 AND 1545/AHD/2007 35 GIVEN AT THE TIME OF ASSESSMENT ARE RELEVANT AND HA VE PROBATIVE VALUE WHERE THE ASSESSEE OFFERED NOTHING BEYOND THE EXPLANATION OFF ERED AT THE ASSESSMENT STAGE. IN SUCH CASES IT CANNOT BE SAID THAT THE AS SESSEE HAD DISCHARGED THE ONUS GIVEN BY A PREPONDERANCE OF LIABILITIES. THE I NITIAL BURDEN WHICH LAY ON THE ASSESSEE WAS NOT DISCHARGED. THERE WAS TOTAL ABSENC E OF MATERIAL TO REBUT THE PRESUMPTION. THE ASSESSEE'S PLEA DOES NOT STAND THE TEST OF PREPONDERANCE OF PROBABILITIES.' 21.8 THEREFORE IN THE ABOVE CASE THE HON'BLE ORISSA HIG H COURT HAD LAID DOWN THE FOLLOWING PROPOSITION OF LAW: I). EXPLANATION TO SECTION 271(1)(C) IS THE RULE O F EVIDENCE. II) . THE INITIAL BURDEN OF REBUTTAL IS ON THE ASSE SSEE BECAUSE THE BASIC FACTS ARE WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. SECTI ON 106 OF THE INDIAN EVIDENCE ACT. 1872 GIVES STATUTORY RECOGNITION TO THIS UNIV ERSALLY ACCEPTED RULE OF EVIDENCE. III). THERE IS NO DISCRETION ON THE ASSESSING OFFIC ER AS TO WHETHER HE CAN INVOKE THE EXPLANATION OR NOT. 21.9 SIMILARLY IN THE CASE OF CIT V. SHAMA MAGAZI NE [1995] 213 ITR 64 /82 TAXMAN 614 IT WAS HELD BY THE HON'BLE DELHI HIGH C OURT THAT WHENEVER THERE WAS A FAILURE ON THE PART OF THE ASSESSEE IN THE CI RCUMSTANCES REFERRED TO IN EXPLANATION TO SECTION 271(1)(C) THE STATUTORY PRE SUMPTION AUTOMATICALLY FOLLOWED AND IT HAD TO BE DEEMED THAT THE ASSESSEE HAD CONCE ALED THE PARTICULARS OF HIS INCOME. THOUGH THE SAID DECISION OF THE DELHI HIGH COURT RELATES TO THE ASSESSMENT YEAR 1964-65 THE PROPOSITION OF LAW AND THE RATIO LAID DOWN IN THAT CASE IS EQUALLY APPLICABLE TO EXPLANATION 1 TO SECT ION 271(1)(C) INSERTED BY TAXATION LAWS (AMENDMENT) ACT 1975 W.E.F. 1-4-197 6. 21.10 HONBLE ALLAHABAD HIGH COURT HELD I N THE CASE OF SANGAM ENTERPRISES VS. CIT 288 ITR 396(ALL) THAT HAVING GIVEN OUR ANXIOUS CONSIDERATION TO THE CONT ENTION RAISED BY SHRI MAHAJAN WE FIND THAT AFTER THE INSERTION OF EXPLAN ATION 1 TO SECTION 271(1)(C) OF THE ACT BY THE TAXATION LAWS (AMENDMENT) ACT 1975 IF THE EXPLANATION OFFERED BY THE ASSESSEE REGARDING THE ADDITIONS IS EITHER F OUND TO BE FALSE AND REMAINED UNSUBSTANTIATED THE ADDITIONS SO MADE ARE DEEMED T O BE THE CONCEALED INCOME ITA NOS.1544 AND 1545/AHD/2007 36 AND THEREFORE THE PENALTY PROVISIONS ARE ATTRACTED . THE DECISION RELIED UPON BY THE TRIBUNAL RELATES TO THE ASSESSMENT YEARS PRIOR TO APRIL 1 1976 WHEN THE PRESENT EXPLANATION WAS NOT IN THE STATUTE BOOK AN D THEREFORE THEY ARE NOT APPLICABLE IN THE PRESENT CASE. WE ARE THEREFORE O F THE CONSIDERED OPINION THAT THE TRIBUNAL HAS COMPLETELY MISDIRECTED ITSELF IN C ANCELLING THE PENALTY. 21.11 AS REGARDS RELIANCE ON DECISION IN THE CA SE OF NATIONAL TEXTILES VS COMMISSIONER OF INCOME-TAX 249 ITR 125(GUJ) ON BEHALF OF THE ASSESSEE THE SAID DECISION RELATED TO AY 1974-75 B EFORE INSERTION OF EXPLANATION 1 TO SEC 271(1)(C) OF THE ACT RELEV ANT FOR THE YEAR UNDER CONSIDERATION. IN THE SAID CASE HONBLE GUJRAT HIGH COURT DELETED THE PENALTY SINCE THAT WAS A CASE WHERE THERE WAS NO CI RCUMSTANCE TO LEAD TO A REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE 'S CASE-THAT THE CASH CREDITS WERE ARRANGED AS TEMPORARY LOANS WAS FALSE. BUT IN THE CASE UNDER CONSIDERATION ASSESSEE FAILED TO DISCHARGE INITIAL ONUS OF PROVING THE GENUINENESS OF CASH CREDITS AND INSTEAD SURRENDERE D THE AMOUNT OF RS. 7 95 000/- WHILE IN RESPECT OF AN AMOUNT OF RS. 2 0 8 000 DID NOT EVEN FURNISH THE DATE OR CONFIRMATION NOR ANY MATERIAL/EVIDENCE OF S OURCE OF THE AMOUNT EITHER DURING THE ASSESSMENT/PENALTY PROCEEDINGS AND EVEN BEFORE US. MOREOVER HONBLE SUPREME COURT IN A LATER DECISION IN THE CA SE OF K.P.MADHUSDANAN 251 ITR 99 HELD THAT THE EXPLANATION TO SECTION 271(1)( C) IS A PART OF SECTION 271. WHEN THE INCOME-TAX OFFICER OR THE APPELLATE ASSIST ANT COMMISSIONER ISSUES TO AN ASSESSEE A NOTICE UNDER SECTION 271 HE MAKES TH E ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THES E PROVISIONS INCLUDE THE EXPLANATION. BY REASON OF THE EXPLANATION THE ASS ESSEE IS DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS THEREOF IN THE CIRCUMSTANCES STATED IN THE EXPLANATION. THU S RELIANCE ON BEHALF OF THE ASSESSEE ON THE SAID DECISION IS MISPLACED. 21.12 IN A LATER DECISION IN THE CASE OF USHA FER TILISERS VS. CIT 269 ITR 591(GUJ) THE AFORESAID DECISION IN THE CASE OF NAT IONAL TEXTILES WAS CITED. HONBLE JURISDICTIONAL HIGH COURT WHILE UPHOLDING THE LEVY OF PENALTY OBSERVED THAT THE SUPREME COURT IN THE CASE OF MUSSADILAL RAM BHA ROSE [1987] 165 ITR 14 HAS SPECIFICALLY LAID DOWN THE SCOPE OF THE EXPLANA TION IN THE FOLLOWING WORDS: ITA NOS.1544 AND 1545/AHD/2007 37 'THE POSITION THEREFORE IN LAW IS CLEAR. IF THE R ETURNED INCOME IS LESS THAN 80 PER CENT OF THE ASSESSED INCOME THE PRESUMPTION IS RA ISED AGAINST THE ASSESSEE THAT THE ASSESSEE IS GUILTY OF FRAUD OR GROSS OR WI LLFUL NEGLECT AS A RESULT OF WHICH HE HAS CONCEALED THE INCOME BUT THIS PRESUMPTION CA N BE REBUTTED. THE REBUTTAL MUST BE ON MATERIALS RELEVANT AND COGENT.' AS TO WHAT COULD BE THE EXPLANATION BY WHICH THE AS SESSEE CAN REBUT THE PRESUMPTION RAISED AGAINST IT IS STATED BY THE APE X COURT IN THE SAME DECISION IN THE FOLLOWING WORDS WHILE CONFIRMING THE VIEW EXPRE SSED BY THE FULL BENCH OF THE PATNA HIGH COURT IN THE CASE OF CIT V. NATHULAL AGA RWALA AND SONS [1985] 153 ITR 292 : 'THE PATNA HIGH COURT EMPHASISED THAT AS TO THE NAT URE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE IT WAS PLAIN ON PRINCIPLE THAT IT WAS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION WA S GIVEN THE BURDEN PLACED UPON HIM WOULD BE DISCHARGED AND THE PRESUMPTION RE BUTTED WE AGREE. WE FURTHER AGREE THAT IT IS NOT THE LAW THAT ANY AND E VERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. IT MUST BE AN ACCEPTABLE EXPLANAT ION ACCEPTABLE TO A FACT- FINDING BODY. WE ARE AWARE THAT IT WOULD NOT BE POSSIBLE FOR THE HIGH COURT TO ENTER INTO A FACT- FINDING EXERCISE OR REAPPRECIATE THE EVIDENCE AND W E DO NOT PROPOSE TO DO SO. HOWEVER AT THE SAME TIME IT IS APPARENT THAT THE BURDEN WHICH IS CAST ON THE ASSESSEE REMAINS UNDISCHARGED WHEN ONE APPLIES THE PRINCIPLES LAID DOWN BY THE APEX COURT. AS OBSERVED THE EXPLANATION HAS TO BE ONE WHICH IS NOT FANTASTIC OR UNACCEPTABLE. IT IS NOT THE LAW THAT ANY AND EVERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. .' 21.13. IN COMMISSIONER OF INCOME-TAX.VS VIDY AGAURI NATWARLAL AND OTHERS. 238 ITR 91(GUJ) HONBLE JURISDICTIONAL HIGH COURT HELD COMING TO PENALTY PROCEEDINGS AT THE OUTSET WE MA Y SAY THAT IT IS NOT THE CASE OF EVEN THE ASSESSEE THAT IN NO CASE WHERE SUCH DI SCLOSED CASH CREDIT AMOUNT IS TREATED AS INCOME AND ASSESSED AS INCOME OF THAT YE AR IT CANNOT BE SUBJECTED TO PENALTY PROCEEDINGS. ACCEPTING THE PRINCIPLE ON WHI CH THE TRIBUNAL HAS ACTED WOULD RENDER THE PENALTY PROCEEDINGS FOR CONCEALMEN T IN SUCH CASE EVEN IF IT IS ESTABLISHED FROM THE EVIDENCE THAT ENTRIES MADE IN THE BOOKS OF ACCOUNT WERE BOGUS TO THE KNOWLEDGE OF THE ASSESSEE NO PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) CAN BE SUSTAINABLE BECAUSE AS SOON AS ENT RIES IN THE BOOKS OF ACCOUNT HAVE BEEN DISCLOSED TO THE REVENUE SHOWING THE CASH CREDIT ENTERED WITH PARTICULARS THEREOF THERE CANNOT BE ANY CONCEALMEN T OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF. THE E XPRESSION OF THE PRINCIPLE THAT MERE REJECTION OF THE EXPLANATION IS NOT SUFFICIENT TO SUSTAIN PENALTY IS NOT BACKED UP BY NECESSARY ENQUIRY. IT MAY BE NOTICED THAT AS PER RULE OF EVIDENCE THERE IS DISTINCTION BETWEEN SET OF FACTS 'NOT PROVED' AND F ACTS DISPROVED AND FACTS PROVED. BENEFIT OF THE PRINCIPLE THAT MERE NON-SATI SFACTORY NATURE OF EXPLANATION FURNISHED CANNOT AMOUNT TO PROOF OF FALSITY OF EXPL ANATION FURNISHED CAN APPLY IN CASE THE FACT-FINDING AUTHORITY REACHES TO A STAGE WHERE IT CAN ONLY CONCLUDE THAT ITA NOS.1544 AND 1545/AHD/2007 38 THE FACT ALLEGED IS 'NOT PROVED' WHICH WOULD RESULT THAT EXCEPT REJECTION OF THE EXPLANATION FURNISHED BY THE ASSESSEE THERE IS NO MATERIAL TO SUSTAIN THE PLEA OF CONCEALMENT. BUT ON THE OTHER HAND IF THE STATE O F AFFAIRS REVEALS A STAGE WHERE ONE CAN POSITIVELY REACH A CONCLUSION THAT THE FACT ALLEGED IS PROVED OR DISPROVED THE PRINCIPLE THAT MERE REJECTION OF EXPLANATION CA NNOT RESULT IN LEVY OF PENALTY WILL HAVE NO APPLICATION. TO REACH THIS STAGE ALSO INQU IRY WILL HAVE TO BE UNDERTAKEN OF THE DISCLOSURE MADE IN THE RETURN OR IN THE STAT EMENT ANNEXED TO THE RETURN AND TO ARRIVE AT A FINDING WHETHER THE PARTICULARS DISC LOSED ARE TRUTHFUL OR FALSE OR NOT PROVED TO BE SATISFACTORY. THE PRINCIPLE TO WHICH T HE TRIBUNAL HAS REFERRED WOULD APPLY IN THE LAST CASE. IN THE FIRST CASE IT WOULD BE A POSITIVE CASE OF NO CONCEALMENT IN THE SECOND STAGE IT WOULD BE A POS ITIVE CASE OF CONCEALMENT AND IN THE THIRD CASE BENEFIT OF DOUBT WILL GO IN FAVO UR OF THE ASSESSEE. BUT IN EITHER CASE INQUIRY MUST PROCEED FROM THE STAGE THE ALLEG ED DISCLOSURE HAS TAKEN PLACE AND NOT STOP AT THAT STAGE AND CLOSE THE INQUIRY AT THE THRESHOLD ON THE ABSTRACT PRINCIPLE THAT MERE REJECTION OF EXPLANATION DOES N OT RESULT INTO LEVY OF PENALTY. THE TRIBUNAL HAS OBVIOUSLY ERRED IN STOPPING AT THA T STAGE AND NOT CONSIDERING THE MATERIAL BEFORE IT ON THE BASIS OF WHICH THE AU THORITY LEVYING PENALTY HAS COME TO A POSITIVE FINDING AS NOTICED BY US. THE ASSESSEE BEFORE US HAS NOT DISCLOSED THE ADDRES S OF THE DEPOSITORS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND DURING THE COURSE OF PENALTY PROCEEDINGS. IN THE ABSENCE OF DETAILS OF CREDITORS AND OTHER FACTS TO PROVE THE GENUINENESS OF THE DEPOSITS THE ONUS LIES ON THE A SSESSEE. AS PER EXPLANATION 1 TO SECTION 271(1)(C) THE ONUS IS NOT DISCHARGED BY THE ASSESSEE. THE BURDEN LIES ON THE ASSESSEE IS NOT DISCHARGED BY CONVINCING EXP LANATION NOR IT IS LAW THAT ANY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. WE T HEREFORE CONFIRM THE ORDER OF THE CIT (APPEALS) INSOFAR AS CONCEALMENT OF INCO ME OF RS. 1 02 000. 21.14 IN THE INSTANT CASE ALSO THE ASSESSE E HAVING FAILED TO DISCHARGE THE ONUS SURRENDERED AN AMOUNT OF RS. 7 95 000/- AFTER TEN YEARS OF FILING OF RETURN WHILE NEITHER DATE NOR EVEN CONFIRMATION OF THE D EPOSITORS FOR AN AMOUNT OF RS. 2 08 000/- HAS BEEN SUBMITTED . 21.15 AS REGARDS RELIENACE ON THE DECISION IN TH E CASE OF RELIANCE PETROPRODUCTS(SUPRA) THE LD. AR DID NOT DEMONSTRAT E AS TO HOW THIS DECISION IS OF ANY HELP TO THE ASSESSEE. WE ARE OF THE OPINION THAT THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION SINCE IN THE CITED DECISION THE HONBLE APEX COURT FOUND THAT THERE WAS NO FIN DING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCO RRECT OR ERRONEOUS OR FALSE AND AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF IT S EXPENDITURE AS WELL AS INCOME IN ITS RETURN WHICH DETAILS IN THEMSELVES WERE N OT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IN SUCH CIRCUMSTANCES ITA NOS.1544 AND 1545/AHD/2007 39 HONBLE COURT HELD THAT MERELY BECAUSE THE ASSESSE E HAD CLAIMED THE EXPENDITURE WHICH CLAIM WAS NOT ACCEPTED OR WAS NO T ACCEPTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT IN OUR OPINION ATTRACT THE PENALTY UNDER SECTION 271(1)(C). BUT SUCH ARE THE FACTS IN THE INSTANT CA SE AS ALREADY POINTED OUT. THUS RELIANCE ON THE SAID DECISION IS MISPLACED. 21.16 IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE ASSESSEE BEFORE US FAILED TO SUBSTANTIATE THE CASH CREDITS OF RS. 7 95 000/- AND ACCORDINGLY SURRENDERED THE AMOUNT WHILE IN RESPECT OF RS. 2 08 000/- RECEIVED FROM THE AFORESAID TWO CREDITORS EVEN DID NOT SUBSTANTIATE HIS EXPLANATION DURING ASSESSMENT/PENALTY PROCEEDINGS BEFORE THE AO/LD. CIT(A) AND EVEN BEFOR E US DESPITE SUFFICIENT OPPORTUNITY ALLOWED AND THUS NEITHER THE CREDITWOR THINESS OF TWO CREDITORS NOR GENUINENESS OF TRANSACTIONS WAS PROVED. SINCE IN T ERMS OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT THE ONUS IS NOT DISCH ARGED BY THE ASSESSEE DESPITE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO/LD. CIT(A) LEVY OF PENALTY ON THE AFORESAID AMOUNT IS JUSTIFIED.[CIT VS. ALTRON ELECT RONICS INDIA LTD. 301 ITR 66(KAR)]. IN THE LIGHT OF VIEW TAKEN IN THE AFORES AID DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT AND HONBLE APEX COURT AS ALSO OF HONBLE DELHI ALLAHABAD AND ORISSA HIGH COURTS THE BURDEN THAT L IES ON THE ASSESSEE IS NOT DISCHARGED BY CONVINCING EXPLANATION NOR IT IS LAW THAT ANY EXPLANATION OFFERED BY THE ASSEESSEE MUST BE ACCEPTED. WE THEREFORE HAVE NO ALTERNATIVE BUT TO UPHOLD THE ORDER OF THE LD. CIT (APPEALS) INSOFAR AS LEVY OF PENALTY ON THE AMOUNT OF RS. 7 95 000+2 08 000/-=10 03 000/- IS CONCERNED THE ASSESSEE HAVING NOT BEEN ABLE TO DISCHARGE THE BURDEN THAT LAY UPON IT BY EXPLANATION 1 TO S. 271(1)(C) OF THE ACT. THUS GROUND NO.1 IN THE APP EAL IS DISMISSED.. 22. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND THIS GROUND IS ACCORDINGLY DISMISSED. ITA NOS.1544 AND 1545/AHD/2007 40 23. IN THE RESULT BOTH THESE APPEALS ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30-04-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-04-2010 COPY OF THE ORDER FORWARDED TO : 1. SAIYED PAPER MILLS LTD. PLOT NO.162 PHASE-II GIDC VAPI 2. THE ACIT VAPI CIRCLE VAPI 3. CIT CONCERNED 4. CIT(A) VALSAD 5. THE DR ITAT D BENCH AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD