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 Deepak Sales & Properties Pvt. Ltd vs. ACIT (ITAT Mumbai) (Special Bench)
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March, 06th 2014
                                             Reserved on: 13.01.2014
                                           Pronounced on: 20.02.2014

+                               ITA 142/2013

       M/S. BON SALES (P). LTD.             .....Appellant
                 Through: Sh. Ajay Vohra with Ms. Kavita Jha,


       THE COMMISSIONER OF INCOME TAX ........Respondents
               Through: Sh. Rohit Madan, Sr. Standing Counsel
               with Sh. Ruchir Bhatia, Jr. Standing Counsel.



1.     The assessee in this appeal questions the decision of the Income
Tax Appellate Tribunal (ITAT) by which the Revenue's appeal was
allowed for the assessment year (AY) 1996-97.

2.     The substantial question of law framed for consideration by this
Court is as follows:

      "Did the Tribunal fall into an error in holding that the
      assessee had not discharged the initial onus cast upon it
      under Section 68 and furnishing satisfactory explanation in

ITA 142/2013                                                      Page 1
      respect of the total amount of `29,70,900/- in the facts and
      circumstances of the case?"
3.     The assessee company was engaged in manufacturing of cotton
buds and cotton balls. Since its business was not running profitably, it
took up the business of consultancy in real estate development. During
the concerned assessment year, the Assessing Officer (AO) noted that
the assessee had received two amounts from two Non-Resident
Indians (NRIs). The first was from Vinay Kumar Kedia (an amount of
`14,97,400/-), and the second was from Sh. Narottam Singh (an
amount of `14,73,410/-). During the course of enquiry, the assessee
said that these amounts were received for purchase of land on behalf
of these NRIs. The AO observed that the foreign exchange remittances
and certificates disclosed that the amounts had not been sent by two
persons but by two companies, namely M/s. Thailand and General Co.
Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. He, therefore,
queried that since the remittance were received from two companies,
how the credit entries could be made in the books of accounts of the
assessee in the name of NRIs remained unexplained. Since nothing
was    forthcoming,      the    AO   treated   it   as    unexplained     and
assessed/brought them to tax under Section 68 of the Act. The CIT,
upon appeal, considered the issue in the light of the evidence
pertaining to the sale deed through which these lands were purchased
in the names of Sh. Vinay Kumar Kedia and Sh. Narottam Singh. The
CIT accordingly deleted the additions. The Revenue's appeal to the
Tribunal was successful. On 20.08.2004, the Tribunal noticed that the
assessee       had   produced   substantial    evidence     to   prove     the

ITA 142/2013                                                             Page 2
creditworthiness of the creditors. Yet, the main question remained
unanswered even in the order of the CIT. The AO's query was that the
foreign remittance to the assessee was made by two companies but the
assessee had credited the remitted amounts in favour of Sh. Vinay
Kumar Kedia and Sh. Narottam Singh. The AO's doubt led to the
query as to how these credit entries could be made in the name of two
individuals when the remittance were received from two companies.
This query remained unanswered by the assessee. The Tribunal took
note of the sale deeds placed on record to establish the genuineness of
the transaction. However, since the AO had doubted the basis of the
credit entries which had not been cleared before the Tribunal, the
matter was remitted for consideration to the AO again.

4.     This time round, the AO, in the order, noted the Tribunal's
direction. The AO observed that as far as the production of those two
individuals was concerned, the assessee's explanation was that since
they lived abroad, it was not possible to comply with such a
requirement. The assessee was also unable to collect any evidence or
show whether the two companies which had remitted the amounts
were substantially owned or any substantial shareholding in them was
owned by the said two individuals. The assessee again repeated before
the AO the assertion that it had purchased land on behalf of the two
persons and they were duly registered in their names. The AO rejected
the assessee's explanations and confirmed the addition yet again.

5.     The assessee's appeal was successful. The order of the appellate
Commissioner allowing the assessee's claim was premised on the

ITA 142/2013                                                        Page 3
affidavits of one Ms. Rosna Singjirakul as well as that of Sh. Vinay
Kumar Kedia and Sh. Narottam Singh, the two purchasers. The CIT
was satisfied as to the link in the chain of transactions that led to the
two individuals. The CIT, therefore, held that in substance the
amounts deposited with the assessee pertained to the said two Sh.
Vinay Kumar Kedia and Sh. Narottam Singh and had been received by
way of advance for the cost of land that was purchased by them from
the appellant in the subsequent years. The CIT (Appeals) also noted
that the assessee had received commission and development charges
which were credited to the P&L account in the subsequent years and
taxed accordingly.

6.     The Tribunal accepted the Revenue's appeal. Its reasoning is
premised upon the previous remand order where according to it the
directions were clear that the AO had to afford an opportunity to the
assessee to prove whether the two companies were owned by Sh.
Vinay Kumar Kedia and Sh. Narottam Singh and the link between the
two. The inability expressed by the assessee to do so, and its exclusive
relevance on affidavits filed before the AO, according to the Tribunal,
were not sufficient or adequate explanation as to avoid the income
being added under Section 68. It accordingly directed the addition of
those amounts, restoring the order of the AO.

7.     In the present appeal, it is contended that the assessee did all
that was expected of it and indeed lawfully required of it in the
remand proceedings. Learned counsel, Sh. Ajay Vohra, argued that by
producing the affidavits of the three individuals, i.e. the lady ­ Ms.

ITA 142/2013                                                       Page 4
Rosna Singjirakul, who facilitated the transaction and the two
individuals who were the ultimate purchasers, the assessee in fact
established the identity of the persons extending the credit or giving
the money as well as the genuineness of the transaction. Emphasizing
that the genuineness was also established or proved through other
means, such as the registered sale deed and the entries in the books of
accounts depicting the commission payable to the assessee, learned
counsel emphasized that the law pertaining to Section 8 did not cast as
onerous a burden as was understood by the Tribunal in the
circumstances of this case. Placing reliance on CIT v. Value Capital
Services (P.) Ltd., [2008] 307 ITR 334 (Delhi), CIT v. Divine Leasing
& Finance Ltd., [2008] 299 ITR 268 (Delhi) and various other
decisions, it was submitted that the inability to produce evidence that
was impossible to access could not result in the assessee being placed
disadvantageously. Learned counsel submitted that as to whether M/s.
Thailand and General Co. Ltd. and the other firm who were the
remitters in this case were the real investors had to be seen in the light
of the end-use of the amount. Learned counsel submitted that these
two concerns were more in the nature of facilitators for financial
transactions that were commonly prevalent in Thailand which
routinely facilitated remittances abroad from that country.

8.     Reliance is placed upon the decision of the Supreme Court in
Commissioner of Income Tax. v. Lovely Exports Pvt. Ltd., 216 CTR
195 (SC). In that case, the Court affirmed the judgment of the Division
Bench which had ruled that so long as the identity of the person

ITA 142/2013                                                        Page 5
making the investment or the source of funds could be traced, the
assessee is said to have discharged the burden placed upon him. The
assessee also relied upon the judgments reported as CIT-IV v.
Dwarkadhish Investment (P.) Ltd., 2010 (330) ITR 298 (Del); CIT v.
Oasis Hospitalities (P.) Ltd., 2011 (333) ITR 119 (Del) and CIT v.
Victor Electrodes Ltd., 2012 (329) ITR 271 (Del). It was urged that in
the light of these decisions, the approach of the Tribunal amounted to
casting an unreasonable, if not impossible, burden on the assessee.
The assessee argued in addition that for the Revenue to infer that the
amounts in question were really benami or from a dubious source, the
onus was upon it. In other words, once the genuineness of the
transactions and the identity of the persons concerned were shown, the
Revenue had to proceed further with concrete materials to conclude
that the amounts were benami. Learned counsel also relied upon the
decision reported as CIT v. Divine Leasing and Finance Limited,
[2008] 299 ITR 268 (Delhi). Learned counsel for the respondent relied
upon the findings of the Tribunal in the impugned judgment and urged
the Court not to interfere with them. It was argued that the remand
order by the Tribunal on the previous occasion was on the pointed
issue regarding the identity of the two companies, i.e. M/s. Thailand
and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand.
Further, learned counsel argued that the assessee's reliance upon the
affidavits of Sh. Vinay Kumar Kedia and Sh. Narottam Singh on the
one hand and the affidavit of Ms. Rosna Singhjirakul was insufficient,
and there needed to be a clear confirmation from the two foreign
remitters, i.e. M/s. Thailand and General Co. Ltd. and M/s. Preet

ITA 142/2013                                                     Page 6
Trading Co. Ltd. of Thailand. In the absence of these, it could equally
be held by the AO that the entries shown in the books of accounts in
respect of the transaction could well cover some other commercial
activity, and the property purchased could well be in reality    0f__²in

relation to some other commercial transaction. Therefore, the scope of
the remand was specific, i.e. the link between the two remitters in the
chain of investment. If the two purchasers had been facilitated in their
transactions by Ms. Rosna Singhjirakul, what was expected of the
assessee was to show that the immediate remitters today, i.e. the two
Thai companies had indeed facilitated the transaction as was stated by
Ms. Rosna Singhjirakul.

9.     From the above discussion, what is evident is that the assessee's
explanation for the receipt of `29,70,810/- was that it was in respect of
a transaction facilitated by it as a property consultant to the two
individuals ­ Sh. Vinay Kumar Kedia and Sh. Narottam Singh. It
relied upon the sale deeds executed in favour of those individuals and
also the relevant entries in its books to say that the amounts were
received as consideration payable on behalf of those individuals to the
vendors of the properties and that the fee payable had been debited
from their account. Superficially, the explanation seems plausible.
Yet, the Court cannot lose sight of the fact that the identity of the
investor and the genuineness are the twin requirements that have to be
established to the satisfaction of the AO in each case where Section 68
is sought to be invoked. Section 68 is in the nature of an attributive or
"deemed" income in the hands of the assessee, and the AO is given the

ITA 142/2013                                                       Page 7
power to include unexplained cash in the hands of the assessee. Lovely
Exports (supra) and various other decisions culminating are forthright
that if the identity of the transaction and the genuineness are
established, the burden cast upon the assessee is said to be discharged
and the AO, in order to invoke Section 68, has to probe further and
discharge the onus placed upon the Revenue. The question in this
case, therefore, is whether those requirements are said to have been
met with by the Revenue.

10.    The remand in the first round of the litigation was on a narrow
and pointed aspect, i.e. the identity of the remitters, M/s. Thailand and
General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. No
doubt, the affidavits of the purchasers (of the property), Sh. Vinay
Kumar Kedia and Sh. Narottam Singh in support of the assessee's
assertions as well as the affidavit of Ms. Rosna Singhjirakul, to some
extent, advance its case. At the same time, the immediate foreign
remitters' explanation is absent. The assessee contends with some
vehemence that being foreign nationals or concerns, it was not
possible to secure their confirmations or affidavit and further, they are
beyond the pale of jurisdiction of the Indian authorities. Whilst that
may be so, this Court cannot help notice that when asked to produce
materials in support of its contention after the remand, the assessee
was able to secure affidavits of Ms. Rosna Singhjirakul as well as the
alleged purchasers, i.e. Sh. Vinay Kumar Kedia and Sh. Narottam
Singh. When the scope of remand itself is narrow and limited, in
proving of entire chain of transactions leading to the remittance to the

ITA 142/2013                                                       Page 8
assessee, the missing link was also an aspect which had to be
established.     This becomes critical because the monies were
immediately remitted to the assessee by the two Thai companies - M/s.
Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of
Thailand. The scope of the remand was defined in the previous order
of the Tribunal dated 20.08.2004, the relevant part of which is
extracted below:

         "We have carefully examined the order of the lower
         authorities and we are of the considered opinion that it
         is a fit case where the issue should be restored to the
         file of the AO for its re-examination and also to afford
         an opportunity to the assessee to prove whether these
         two companies are owned by Shri Vinay Kumar Kedia
         and Shri Narottam Singh. If not, how the assessee has
         made the credit entries in its books of account when the
         foreign remittance was made to it by these two
         companies. We, therefore, set aside the order of the
         CIT(A) and restore it to the file of the AO for
         readjudication of the impugned issue after affording an
         opportunity of being heard to the assessee."
11.    There is no need for any authority for the proposition that the
scope of enquiry of lower authority or Court in the face of a remand is
confined to the points required of it to return a finding. Having regard
to this aspect, once the Tribunal had spelt out what was expected of
the assessee, it was not now open for the latter to contend that the
requirement was unreasonable. The assessee did not appeal against the
remand nor seek dilution of points on which the Tribunal recollected
finding after due enquiry. In these circumstances, it is now not open
for the assessee to state that even though it could afford explanations

ITA 142/2013                                                        Page 9
by way of affidavits of the two individuals and the foreign national, its
inability to secure any confirmation or documentary proof in support
of its contention that the two foreign remitters did not have any
independent transaction carries no consequence. Since this aspect goes
to the root of the second requirement under Section 68, this Court is of
the opinion that the genuineness of the transaction alleged by the
assessee cannot be said to have been shown by it in discharge of the
initial burden placed on it by Section 68 of the Income Tax Act.

12.    In the light of the above findings, the appeal has to fail; it is
accordingly dismissed with no order as to costs.

                                                S. RAVINDRA BHAT

                                            RAJIV SAHAI ENDLAW
FEBRUARY 20, 2014

ITA 142/2013                                                       Page 10
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