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October, 06th 2014
                                 Judgment Reserved on September 03 , 2014
                                 Judgment Delivered on September 16, 2014
+                             ITA No. 1270/2011
COMMISSIONER OF INCOME TAX-VI              .....Appellant
            Through:      Mr.Sanjeev Sabharwal,
                          Sr.Standing Counsel/Sr.Advocate
                          with Mr.Ruchir Bhatia, Ms.Swati
                          Thapa, Advocates


M/S. T.S.KISHAN & CO. LTD.                                 ..... Respondent
               Through:                  Mr.Ved Jain, Advocate with
                                         Ms.Pranjal Srivastava, Advocate


1.      This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961 (Act, for short) pertains to assessment year 2005-06 and

emanates from order dated June 14, 2011 passed by the Income Tax

Appellate Tribunal, Delhi (`Tribunal', for short) in ITA No.

4938/DEL/2010, whereby the Tribunal while dismissing the appeal filed

by the Revenue, confirmed the order of the CIT(A), wherein, it

concluded as under:-

              "6.    We have heard the rival contentions in
              light of the material produced and precedent

ITA No. 1270/2011                                         Page 1 of 16
              relied upon.   We find that assessee has duly
              submitted that the loans were received by cheque
              and were paid in subsequent assessment years
              and necessary, evidence in this regard has also
              been submitted in the shape of the affidavit, bank
              statement. In these circumstances, we find that
              the Ld. Commissioner of Income Tax (Appeals)'s
              action in deleting the addition is justified.
              Hence, we do not find any infirmity or illegality
              in the order of the Ld. Commissioner of Income
              Tax (Appeals) and hence, we uphold the same".
2.      The following substantial question of law was framed by this

Court on 26.03.2012:

             "Whether the Income Tax Appellate Tribunal was
             right in dismissing the appeal of the Revenue
             upholding deletion of addition of Rs. 28,00,000/-
             under Section 68 of the Income Tax Act, 1961".

3.      The relevant facts, as emerged from the Assessment order dated

December 28, 2007, are that the respondent assessee, i.e., M/s. T.S.

Kishan & Co. Ltd., (hereinafter referred to as `respondent assessee), filed

its return of income declaring a loss of Rs. 44,70,307/-. The return was

processed under Section 143(1) of the Act and thereafter, a notice was

issued under Section 143(2) of the Act, initiating scrutiny assessment

ITA No. 1270/2011                                          Page 2 of 16
4.      The Assessment officer vide its order dated December 28, 2007,

assessed the total loss of Rs. 16,70,307/-, while reducing the returned

loss by making an addition of Rs. 28,00,000/- pertaining to unsecured

loans credited in the books of account of the assessee being income from

undisclosed sources under Section 68 of the Act. Relevant portion of the

Assessment order is reproduced hereunder:

             "4.      Keeping in view the above position, the
             assessee was required vide order sheet entry dated
             20.12.2007 to prove identification, genuineness and
             creditworthiness as per the provisions of Sec. 68 of
             the IT Act, 1961 in respect of both the aforesaid
             firms i.e. M/s. Shila Textile and M/s. Rajesh
             Upadhyay & Co. Case was adjourned to 24/12/2007.

             5. On 24/12/2007, Shri Dinesh Aggarwal, CA
             attended the office. But, he could not provide PAN,
             Address or confirmation of loan taken from M/s.
             Shila Textile and M/s. Rajesh Upadhyay & Co. The
             assessee submitted that the subject roans were taken
             by cheque and the amount of loan was repaid by
             cheque in the next year i.e. FY 2005-06. The
             assessee sought time to try again in contacting the
             aforesaid firms. Proceedings were adjourned to

             6. On 28/12/2007, the assessee filed an affidavit in
             which he provided the particulars of loan obtained
             by cheque and also returned by cheques. I have
             considered the affidavit as well as other submissions
             made by the assessee in this regard. But, the fact
             remains that the assessee has not discharged the
             onus cast upon it to identify the persons and prove
             their creditworthiness of having advanced the loan
             to the assessee. This is the requirement of law as per
             the provisions contained in Sec. 68 of the IT Act,
ITA No. 1270/2011                                          Page 3 of 16

             7. Hence, reference is invited to the recent decision
             of Hon'ble Delhi High Court in the case of CIT Vs
             Himalaya International Ltd., in which Hon'ble Court
             has held vide its order dated 30.07.2007 that if the
             Assessing Officer harbours doubts of the legitimacy
             of any subscription, he is empowered, nay duty-
             bound to carry out thorough investigation u/s 68 of
             the IT Act, 1961. The assessee has to prima facie
             prove (1) the identity of the credit/subscriber (2) the
             genuineness` of the transaction (3) the credit
             worthiness. Further, reference is also invited to the
             decision of Hon'ble Calcutta High Court in the case
             of CIT Vs M/s. Precision Finance Pvt. Ltd. (208 ITR
             465) & CIT Vs M/s. Korloy Trading Co. Ltd. (232
             ITR 820) on the issue in hand.

             8. Keeping in view the above discussion, sum of Rs.
             28,00,000/- pertaining to unsecured loans credited
             in the books of account of the assessee during the FY
             2004-05 is treated as undisclosed income u/s 68 of
             the IT Act, 1961."

5.      On appeal filed by the assessee, CIT(A) has framed two issues,

first being whether the Assessing Officer has erred in law and on facts

and was justified in treating unsecured loans of Rs. 28,00,000/- as

income of the assessee, and the second being the initiation of penalty

proceedings u/s 271(1)(c).

6.      CIT(A) vide its order dated September 01, 2010, allowed the

above appeal. The findings of the CIT(A) are reproduced hereunder:

             "10.    In view of the above, the identity of both the
             parties i.e. M/s Sheela Textile and Rajesh
             Upadhyaya & Co stands proved.
ITA No. 1270/2011                                           Page 4 of 16
             11.      The Ld. AO has obtained the bank
             statements of both the parties. From the bank
             statement it is clear evident that the loan amount is
             flowing from the above bank accounts of the parties
             to the account of the assessee by account payees
             cheque only. Similarly, the repayments by the
             assessee from its bank account with the Indian
             Overseas bank are flowing back to both the parties
             account with Bank of Baroda by account payee
             cheques only. While issuing the cheques to the
             assessee, both the parties have the bank account
             balance with them out of which the money was
             received by the assessee. In view of this credit
             worthiness and genuineness also stand proves.

             12.       Further from the close scrutiny of the above
             bank statement, it would be observed that there are
             the frequent transaction in the bank account
             whereby regular amounts are being deposited and
             withdrawals made, both by cheque and cash. This
             shows that both the firms are having some regular
             business and the money tended to the assessee is out
             of this business only. The assessee has submitted a
             detailed affidavit before the learned AO a copy of
             which is enclosed herewith as Annexure I. This
             affidavit contains the factual position, copy of ledger
             accounts of the parties appearing in the books of the
             assessee, bank statement of the assessee showing
             receipt and repayment of loans, confirmation from
             the assessees bank for the repayment of loans and
             other supporting documents.

             13.      In a recent Judgment, Honorable Delhi
             High Court in the case of CIT v/s Dwarkadhish
             Investment Pvt. Ltd. ITA 9011/2010 dated August 2,
             2010 (2010) 6 84 (delhi) (A Copy of
             the order is attached herewith as Annexure IV) held
             that though in Section 68 proceedings, the initial
             burden of proof lies on the assessee yet he once
             proves the identity of the creditors/share applicants
             by either furnishing their PAN or Income Tax
ITA No. 1270/2011                                           Page 5 of 16
             assessment no. and shows the genuineness of
             transaction by showing money in his books either by
             way of account payee cheque or by draft or by any
             other mode than the onus of proof would shift to the
             revenue. It was also held that just because
             creditor/share applicant could not be found at
             address given, and it would not give Revenue right to
             invoke section 68. Moreover, it was held that it is a
             settled law that the assessee need not to prove the
             "source of source".

             14.      In this case of the assessee though it is not
             able to provide the PAN of the Parties who have lent
             the money but had been able to provide all the other
             material to prove the identity of the party by
             furnishing the account opening form mentioning the
             address, photo of one of the lender and the PAN of
             the introducer of the account. Today when the bank
             are supposed to follow the KYC norms as stipulated
             by the Reserve Bank of India, the existence of bogus
             parties does not arise and that too for an account
             running since 2001 that is almost for 10 years now.
             The address as given by the assessee is same as has
             been mentioned in the bank account opening form
             and all the parties do exist even today at these
             address though it has been denied to the inspectors
             who had gone for the inspection.

             15.       The genuineness of the transaction is
             proved by the fact that the money has been received
             by the assessee from the bank account of the lenders
             by account payee cheque only as evident from the
             bank statement of both the parties and assessee. A
             certificate from the bank has also been submitted
             before the AO which is forming a part of the affidavit
             submitted by the assessee.

             In view of above it is prayed that the appeal of the
             assessee may kindly be allowed by deleting the
             addition of Rs. 28 lacs on account of unexplained
             credits u/s 68 of Income Tax Act."
ITA No. 1270/2011                                          Page 6 of 16
             8.        I have gone through the assessment order
             and the detailed written submissions filed by the AR
             in this regard.

             9.1      The assessee has shown receipt of Rs.
             28,00,000/- as loans from the following two parties:
             1. Sheela Textiles                 Rs. 5,00,000/-
             2. Rajesh Kumar Upadhaya & Co. Rs. 23,00,000/-

             9.2      The AO disbelieved the credits on the
             grounds that identity and creditworthiness of the
             transactions are not proved. The contentions of the
             AR are that the amounts were received by way of
             cheques and the amounts were repaid in the
             subsequent assessment years apart from stating that
             necessary evidence was furnished before the AO by
             way of Affidavit and Bank Statements.

             9.3      The AO has not disputed the repayment of
             loans in subsequent assessment year/s. in the case of
             ITO vs. Shyam Sunder Jajodia (2008) 26 SOT 541
             (Delhi), the Hon'ble Tribunal has held that
             repayment of loan confirms the earlier acceptance of

             9.4      After careful consideration of the facts
             brought on record, the identity, creditworthiness 86
             genuineness of the transactions as envisaged u/s 68
             are adequately proved. In the light of the above
             discussion, the action of the AO is not upheld."

7.      Aggrieved by the order dated September 01, 2010 passed by the

CIT(A), the Revenue filed ITA No. 4938/Del/2010 before the Tribunal

i.e. Income-Tax Appellate Tribunal, New Delhi, wherein the issue raised

by the Revenue was that whether the Ld. CIT(A) erred in deleting the

ITA No. 1270/2011                                         Page 7 of 16
addition of Rs. 28,00,000/- on account of unexplained receipts of

unsecured loans.

8.      The Tribunal vide its order dated June 14, 2011, dismissed the

appeal of the Revenue while justifying the findings found by the CIT(A)

in its order. The relevant finding of the order passed by the Tribunal are


             "6. We have heard the rival contentions in light of
             the material produced and precedent relied upon.
             We find that assessee has duly submitted that the
             loans were received by the cheque and were paid in
             subsequent assessment years and necessary,
             evidence in this regard has also been submitted in
             the shape of the affidavit, bank statement. In these
             circumstances, we find that Ld. Commissioner of
             Income Tax (Appeals)'s action in deleting is
             justified. Hence, we do not find any infirmity or
             illegality in the order of the Ld. Commissioner of
             Income Tax (Appeals) and hence, we uphold the

9.      Aggrieved by the order passed by the Tribunal, revenue filed the

present appeal inter alia on the following grounds:

             a. Order of CIT(A) as well as the Tribunal is a non
                    speaking order.
             b. The Tribunal as well as CIT(A) erred in coming to the
                    conclusion that the assessee had discharged the initial
                    onus which lay upon him in terms of Section 68 of the

ITA No. 1270/2011                                             Page 8 of 16
             c. The Tribunal as well as the CIT(A) completely failed
                    to take note of the fact that no credible evidence in
                    respect of these firms was brought on record to
                    establish their identity, genuineness of the transaction
                    and credit worthiness of such firms.
             d. The Tribunal as well as CIT(A) erred in relying upon
                    the affidavit filed by the assessee which was a self
                    serving evidence and placing too much reliance on the
                    bank statement produced of the firms to prove identity
                    and genuineness.

10.     Mr.Sanjeev Sabharwal, learned counsel for the appellant-Revenue

would submit that the assessee has failed to discharge the onus in

proving       the       identity,   genuineness   of       the   transactions    and

creditworthiness of the parties. According to him, the Assessing Officer

has rightly treated the income from other sources and made an addition.

He would further state that the CIT(A) and the Tribunal have not

appreciated the facts in proper prospective while concluding in favour of

the assessee. According to him, the finding of the CIT(A) and the

Tribunal that the assessee has repaid the loan in subsequent year was

without ascertaining whether interest was paid by the assessee for the

loans; the reliance placed by the CIT(A) on the affidavit of the assessee

which is a self-serving evidence, was untenable. The reliance on the

bank statements of the parties by the CIT(A) could not prove the
ITA No. 1270/2011                                                 Page 9 of 16
identity, genuineness on the transactions; the parties were found to be

non-existent at the given address. According to him, the tests laid down

by this Court in the case of CIT Vs. Oasis Hospitalities (Pvt.) Ltd., ITA

No. 2093/2010, decided on 31.01.2011 have not been satisfied.

11.     On the other hand, Mr. Ved Jain, learned counsel for the

respondent-assessee supports the conclusion of the CIT(A) and the

Tribunal. He would state that the assessee could able to prove the

identify and genuineness of the transactions through the account details

of the parties from where the loan was advanced.           He relied upon

affidavit filed by the assessee with regard to the transactions. He would

further state that the genuineness of the loan of Rs. 42,05,000/- which

was also arranged by Mr. Bharat Kaushik has been accepted by the

Assessing Officer and there was no reason for the Assessing Officer to

reject loans for Rs. 28 lakhs.

12.     Having heard the learned counsel for the parties, before we deal

with the rival submissions, the position of law is as under:

13.     Section 68 of the Income Tax Act, 1961 (`Act' in short),

empowers the Assessing Officer to treat the income credited in the books

of accounts of the assessee for any previous year if there is no plausible

explanation by the assessee about the nature and source of such income

or if the explanation given is not satisfactory. Once it is explained, it is
ITA No. 1270/2011                                        Page 10 of 16
for the Assessing Officer to consider the same and form an opinion about

the genuineness of the whole transactions. Such an opinion must be

based on cogent evidence i.e. material produced by the assessee. In

A.Govinda Rajulu Mudaliar Vs. CIT, [1958] 34 ITR 807 (SC), it was

held that it is not necessary for the department to adduce evidence to

show from which sources the income was derived and as to why it

should be treated as undisclosed income.     If the assessee fails to prove

satisfactory the source and nature of certain amount of cash received

through the accounting year, the ITO is entitled to draw an inference that

the receipts are of an assessable nature. Therefore, the burden of proving

the source of such income is on the assessee.

14.     In CIT Vs. Durga Prasad More, [1971] 82 ITR 540 (SC), it was

held that the discharge of onus is dependent on the facts and

circumstances of each case. Whether the initial onus is discharged or not

that has to be ascertained from the materials on record. Once the initial

onus is discharged, the onus shifts on the Revenue. Then, it is for the

Revenue to act on it and until it comes to a finding that the explanation is

insufficient and unsatisfactory, it could either ask for further explanation

or could come to a decision on the basis of such material, but it is also a

necessity or incumbent on the taxing authority to discharge their duty

before fastening liability on the assessee. Therefore, when the materials
ITA No. 1270/2011                                        Page 11 of 16
are placed before it, the Revenue is duty bound to look into the same.

15.     In the present case, it is seen insofar as the identity is concerned,

the assessee could not produce the PAN Number of both the parties. The

Assessing Officer, using his power under Section 131 of the Act, had

called upon the bankers of the parties to produce the necessary

particulars. The banks could only produce the account opening forms

and bank statements of the parties. We do not think that the efforts made

by the Assessing Officer and the fact that he was able to procure the

bank statement would justify the finding and conclusion that identity,

creditworthiness and genuineness of the transactions stands established.

The findings recorded by the Assessing Officer and which remained

unnoticed are telling and unequivocal. Attempts made by the Assessing

Officer to serve the parties at 17/4, Mathura Road, New Delhi proved

futile. This position is admitted and it is accepted by the counsel for the

respondent that the address mentioned was correct. Mr. Bharat Kaushik,

who acted as an introducer while opening the accounts and who is said

to be the son of an old friend and was instrumental for arranging funds,

was not produced on the pretext that the assessee was not in best

relations with him. This appears to be a ploy for not producing him. His

presence definitely would have thrown light on the identity of the

parties. We also note, at the same time, the Assessing Officer should
ITA No. 1270/2011                                         Page 12 of 16
have invoked Section 131 of the Act to ensure his presence. The parties

who had given loans of Rs.28 lacs namely Sheela Textile and Rajesh

Upadhyaya & Co. were not produced. That apart, we note the Account

Numbers being 51706, 51921 are in close proximity and have been

opened around the same time. It is surprising that the bank had not even

cared to seek the complete details of the parties at the time of the

opening of the account like their PAN Number. It is also not disputed by

the learned counsel for the assessee that the assessee had not paid any

interest to the parties for advancing such huge loans. It has also come on

record that the parties were not known to the assessee so as to oblige the

assessee by advancing interest free loan of substantial amounts. The

purpose for which the loans were taken, have not been spelt out by the

assessee in his affidavit or otherwise. The Paying back of the so called

loans by way of an Account payee cheque is not conclusive, moreso, if

the aspects narrated above, are considered cumulatively. The facts have

to be seen in the context of Section 68 of the Act. Suffice to state, the

identity of the parties have not been proved, their creditworthiness not

established and genuineness of transactions not demonstrated. In this

context the respondent assessee was unable to file/give PAN number,

details of income tax returns etc.

16.     The Calcutta High Court in the case of CIT Vs. Precision Finance
ITA No. 1270/2011                                       Page 13 of 16
(P) Ltd., [1994] 208 ITR 465 (Cal) has held that it is for the assessee to

prove the identity of the creditors, their creditworthiness and

genuineness of the transactions. Mere furnishing of particulars is not

enough. It was found, in that case, on enquiry by the ITO that the

assessee was not traceable and there was no such file.               The first

ingredient as to the identity was not established. Similar view was taken

by the same High Court in the case of CIT Vs. Korley Trading Co. Ltd.,

[1998] 232 ITR 820 (Cal) wherein, the High Court held the creditors

should be identified; there should be creditworthiness, genuineness of

the transactions. The furnishing of income tax file number is not enough

to prove the genuineness of cash credit.

17.     We also note in agreement the judgment of this Court as relied

upon by Mr. Sanjeev Sabharwal in support of his case in CIT Vs. Oasis

Hospitalities (Pvt.) Ltd (supra), wherein, this Court has held as under:

                "11. It is clear from the above that the initial
                burden is upon the Assessee to explain the nature
                and source of the share application money received
                by the Assessee. In order to discharge this burden,
                the Assessee is required to prove:
                (a) Identity of shareholder;
                (b) Genuineness of transaction; and
                (c) Credit worthiness of shareholders.
                12. In case the investor/shareholder is an
                individual, some documents will have to be filed or

ITA No. 1270/2011                                         Page 14 of 16
                the said shareholder will have to be produced
                before the AO to prove his identity. If the
                creditor/subscriber is a company, then the details in
                the form of registered address or PAN identity, etc.
                can be furnished.
                13. Genuineness of the transaction is to be
                demonstrated by showing that the Assessee had, in
                fact, received money from the said shareholder and
                it came from the coffers from that very shareholder.
                The Division Bench held that when the money is
                received by cheque and is transmitted through
                banking or other indisputable channels,
                genuineness of transaction would be proved. Other
                documents showing the genuineness of transaction
                could be the copies of the shareholders register,
                share application forms, share transfer register,
                14. As far as creditworthiness or financial strength
                of the credit/subscriber is concerned, that can be
                proved by producing the bank statement of the
                creditors/subscribers showing that it had sufficient
                balance in its accounts to enable it to subscribe to
                the share capital. This judgment further holds that
                once these documents are produced, the Assessee
                would have satisfactorily discharge the onus cast
                upon him. Thereafter, it is for the AO to scrutinize
                the same and in case he nurtures any doubt about
                the veracity of these documents to probe the matter
                further. However, to discredit the documents
                produced by the Assessee on the aforesaid aspects,
                there has to be some cogent reasons and materials
                for the AO and he cannot go into the realm of

18.     The CIT(A) and the Tribunal, in our view, have committed an

error in not properly approaching the issue which fell for their

consideration out of the findings rendered by the Assessing Officer. In

ITA No. 1270/2011                                           Page 15 of 16
such a situation, it has to be held that they have committed substantial

error of law in interfering with the order of the Assessing Authority

without any proper basis.

19.     In view of the aforesaid, we are therefore convinced that

interference is required by this Court in this appeal. We accordingly set

aside the order of the Tribunal and restore the order of the Assessing

Officer. The question of law is accordingly decided in favour of the

appellant-Revenue and against the respondent-assessee.

20.     The appeal is disposed of.

21.     No costs.

                                               (V.KAMESWAR RAO)

                                                  (SANJIV KHANNA)
SEPTEMBER 16, 2014

ITA No. 1270/2011                                        Page 16 of 16
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