HON’BLE SRI JUSTICE V. ESWARAIAH
HON’BLE SRI JUSTICE K.G. SHANKAR
ITTA NO. 110 OF 2012
M/s. Sri Chakra Cements Ltd
The Income Tax Officer,
Ward 3 (1), Hyderabad
JUDGMENT: (per Hon’ble Sri Justice V. Eswaraiah)
This Appeal, under Section 260A of the Income Tax, 1961 (for short ‘the Act’) arising out of the assessment year 1996-97, is sought to be filed alleging that the following are the substantial questions of law that arise for consideration:
“1. Whether on the facts and circumstances of the case, the Hon’ble Tribunal is right in upholding the order of the Commissioner of Income Tax (Appeals) who sustained an addition of Rs.50 lakhs under Section 68 of the Income Tax Act, 1961 on the ground that the appellant has failed to prove the identity of the party and the genuineness of the transaction?
2. Whether on the facts and circumstances of the case, it could be concluded that the appellant has not discharged the primary onus cast on it by section 68 of the Act and no duty is cast on the assessing office to make further enquiries specially in the absence of any finding that the investor company was a mere name lender?”
The facts of the case are that the appellant is a company carrying on the manufacture of sale of cement. The appellant filed a return of income on 29.11.1996 admitting “Nil” income after setting off of brought forward losses. The Assessing Officer originally completed the assessment on 30.3.1999 under Section 143 (3) of the Act and determined the total income at Rs.3,96,59,292/-. Therefrom, the Assessing Officer reduced the unabsorbed depreciation of a similar amount. While determining the said income, the Assessing Officer added the increase in the share capital of Rs.3,19,50,000/-. The appellant filed an appeal before the Commissioner of Income Tax (Appeals), who set aside the assessment and remanded the matter to the Assessing Officer. The Assessing Officer completed the re-assessment on 28.10.2002 under Section 143 (3) r/w Section 251 of the Act.
It is stated that on remand, the appellant was addressed various letters for furnishing the information about the investment and in response to the letters and notices issued to the Chartered Accountant and also to the Manager (Accounts) of the appellant, they appeared and furnished the details with regard to Rs.3,19,50,000/- of the share capital. The appellant was able to furnish the material about the investment in share capital through Demand Drafts, which were reflected in the books of accounts of the respective companies as well as the individuals, which were routed through official channels and accordingly the relief was granted to the appellant for investment of the share capital of Rs.2,69,50,000/-, but insofar as Rs.50,00,000/- is concerned, it was added as cash credit of the appellant on the ground that the investment of Rs.50,00,000/- is said to have been invested by Gold Crest Finance (India) Limited. With regard to the said investment by Gold Crest Finance (India) Limited, the appellant could not produce any information about the whereabouts of the said company in spite of addressing letters on 23.9.2002.
In computing the said income of Rs.50 lakhs of the appellant, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) IV, Hyderabad, who by order dated 5.1.2004 held that the amount of Rs.50 lakhs by Demand Drafts said to have been received by the Gold Crest Finance (India) Limited towards inter corporate deposit payable on demand was not able to be established. It is stated that the said Rs.50 lakhs was said to have been received as inter corporate deposit payable on demand but not towards the share capital. The Commissioner also stated that the appellant also admitted that the whereabouts of the said investor M/s Gold Crest Finance (India) Limited, are not known and the identity of the creditor has not been established by the appellant. The creditworthiness itself is not established. The appellant merely states that creditor is a limited company and assessed to tax but no evidence is furnished like P & L Account, balance sheet or evidence regarding creditworthiness of the creditor. Merely because the amount was received by way of Demand Draft through the banking channels, it cannot be said that the said amount is not a cash credit as the existence of the creditor itself is not established. Admittedly, the onus is on the appellant to prove the genuineness of the said transaction. The appellant has failed to establish the identity of the creditor and, it’s creditworthiness as well as the genuineness of the transaction.
Accordingly, the Commissioner of Income Tax dismissed the appeal holding that the Assessing Officer correctly added Rs.50 lakhs as unexplained credit under Section 68 of the Act.
As against the said order, the appellant filed ITA No.181/Hyd/2004, on the file of the Income Tax Appellate Tribunal, Hyderabad, and the Tribunal by the impugned order dated 28.6.2006, dismissed the appeal.
After going through the facts and circumstances of the case, it is to be seen as to whether the questions raised by the appellant before this Court are the substantial questions of law that arise for consideration or not?
We are of the opinion that insofar as the first question is concerned, we do not see any substantial question of law arising for consideration as admittedly the appellant failed to prove the identity of the party and the genuineness of the transaction and therefore the Assessing Officer, the Appellate Commissioner as well as the Income Tax Appellate Tribunal rightly sustained the addition of Rs.50 lakhs under Section 68 of the Act. Insofar as the second question is concerned, we are of the opinion that the appellant has failed to discharge the primary onus cast on it by Section 68 of the Act and it cannot be said that a duty is cast on the Assessing Officer to make further enquiry, especially when the appellant has failed to discharge his initial burden.
This Court is also of the opinion that when the existence of the investor-company itself is established, merely because the entry was entered in the books of accounts as if the amount was received by demand draft, it cannot be said that the appellant has no legal obligation to explain the nature and source of the credit. He failed to tender any evidence regarding the said cash credit and therefore the Assessing Officer is justified in rejecting the claim of the appellant as he has failed to discharge the burden in explaining the said investment. Further, mere furnishing of the particulars of the investor is not enough and payment of the said amount by way of demand draft is not sacrosanct nor can it make a non-genuine transaction as genuine. The onus is on the appellant to offer explanation as to the nature and source of the said credit and he has failed to establish the identify of the creditor and therefore we are of the opinion that the Tribunal rightly dismissed the appeal.
Under Section 68 of the Act, mere furnishing of the name of the creditor and the particulars of the demand draft to which the said amount of Rs.50 lakhs was received is not a sufficient explanation about the nature and source of the said Rs.50 lakhs and therefore the appellant has failed to explain the cash credit of Rs.50 lakhs and which was rightly charged to income tax as income of the assessee. The said investment of Rs.50 lakhs is rightly added as income of the previous years.
In our opinion, the Tribunal rightly rejected the contention of the appellant with regard to the contentions that the Assessing Officer ought to have conducted a further probe by issuing a notice or summons in examining the creditor. When the existence of the creditor itself was not established by the appellant and when he has failed to discharge the primary burden, which lies on him, the question of conducting further enquiry or probe does not arise. Therefore, we do not see any substantial questions of law arising for consideration to admit the appeal.
The appeal is accordingly dismissed. No order as to costs.
As the appeal is dismissed, miscellaneous petitions shall stand closed.
JUSTICE V. ESWARAIAH
JUSTICE K.G. SHANKAR