Commissioner of Income Tax vs Morani Automotives (P) Ltd.

Dinesh Maheshwari, J.—By way of this appeal under s. 260A of the IT Act, 1961 (''the Act''), the Revenue seeks to question the order dt. 31st May, 2011 passed by the income tax Appellate Tribunal, Jaipur Bench, Jaipur (Tribunal) in ITA No. 1218/Jp/2010 for the asst. yr. 2006-07 whereby the Tribunal has affirmed the order dt. 3rd Aug., 2010 passed by the CIT(A-II), Jaipur partly allowing the appeal preferred by the assessee and deleting the additions made by the AO in the assessment order dt. 24th Nov., 2008 to the tune of Rs. 13,15,000 on account of unexplained share capital contribution and Rs. 39,40,000 on account of unexplained unsecured loans. Put in brief, the relevant background aspects of the matter are as follows : The respondent-assessee is engaged in trading and service of two wheelers. During the year under consideration, the assessee had shown gross profit of Rs. 30,43,890 against a turnover of Rs. 2,92,65,368. During the course of assessment proceedings, the assessee was provided with opportunities to attend the hearing and to present the requisite details in support of the income declared and to respond to the queries of the AO, and, on its failure to respond, a final show-cause notice dt. 5th Nov., 2008 containing the proposed grounds of concluding the assessment was issued and served upon the assessee. However, on the date fixed, neither the assessee nor its Authorized Representative attended the assessment proceeding nor any details of books of account were produced.

In the given circumstances, the AO proceeded to conclude the assessment proceedings ex parte wherein, inter alia, the AO made the additions of Rs. 13,15,000 on account of unexplained share capital contribution, and Rs. 39,40,000 on account of unexplained unsecured loans.

In the appeal before the CIT(A), the assessee, however, submitted the details, confirmations, returns, affidavits, bank statements etc. from various persons for share capital contribution as also for loans advanced, which could not be collected during the course of assessment proceedings, and prayed for admission of additional evidence. The CIT(A) proceeded to admit the additional evidence with the following observations:

After considering the facts of the case and report of AO it is seen that at the appellate stage various confirmations, affidavits, copies of return of income and copies of statement of computation of total income along with bank account copies from various persons for share capital contribution as well as for loans advanced to the appellant were furnished, which could not be collected during the course of assessment proceedings. Since this information was to be collected from number of the persons and therefore, in my considered view relying upon various judicial decisions on the admission of additional evidence keeping in view the provisions of r. 46A(1)(c) of IT Rules the additional evidence furnished in the appellate proceedings are required to be admitted to decide various grounds of appeal judiciously and these are hereby admitted.

Thereafter, the CIT(A) proceeded to consider the question about justification in regard to various additions. In relation to the addition of Rs. 13,15,000 on account of share capital contribution, the CIT(A) referred to the fact that the contributors were all the income tax assessees and their returns of income and copies of confirmation along with PANs had been furnished. After taking note of various relevant decisions including those of this Court and of the Hon''ble Supreme Court, the CIT(A) found that the requisite particulars as regards the persons concerned having been furnished, there remained no justification for the said addition, and proceeded to delete the same with the following observations:

I have considered facts of the case and arguments taken by Shri Pandeya and Shri Poddar quite carefully. On the issue of share capital contribution in the case of the company keeping in view the latest decision of Hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., and Hon''ble Rajasthan High Court judgment in the case of Commissioner of Income Tax Vs. Shree Barkha Synthetics Ltd., and in the case of Commissioner of Income Tax Vs. AKJ Granites (P.) Ltd., in my considered view when the shareholders have submitted confirmation, made the payment by cheque, having their PANs, filing their returns of income and furnished copies of return of income in the appellate proceedings and therefore, now there is no justification for the said addition of Rs. 13,15,000 on account of addition for new share capital contribution and the same is hereby deleted.

Similarly, in relation to the addition of Rs. 39,40,000 on account of unsecured loans received in the year, the CIT(A) again found that all the requisite confirmations with particulars of the creditors had been furnished, and the identity of cash creditors was not in doubt. Hence, the CIT(A) proceeded to delete such an addition too with reference to several decisions of this Court while observing as under:

...On this issue recently Hon''ble Rajasthan High Court in the case of Labh Chand Bohra Vs. Income Tax Officer, has held that when the amount has been advanced by account payee cheque through bank then requirement on the part of assessee to prove identity and genuineness of the transaction is satisfied. Further, capacity of lender to advance money to the assessee was not a matter which could be required of the assessee to be established as that would amount to calling upon him to establish source of the source. Further, on the issue of cash credit Hon''ble Rajasthan High Court in the case of Commissioner of Income Tax Vs. Heeralal Chaganlal, has held that where the identity of the credit is established and the creditor has confirmed the loan, no addition can be made. Hon''ble Rajasthan High Court in another case of Kanhaialal Jangid Vs. Assistant Commissioner of Income Tax, has held that assessee having filed confirmations from the creditors and where the creditors affirmed advancement of the loan, no addition under s. 68 could be made on the ground that creditor could not satisfactory explain the source of loan. Burden in such case does not extend to prove source of the creditor from where he has made the advances to the assessee. Recently, Hon''ble Tribunal, Jaipur Bench in the case of Rajkumar Mehta v. ITO in ITA No. 935/Jp/2008, dt. 29th Aug., 2008 relying upon Rajasthan High Court judgment in the case of Kanhaialal Jangid (supra) has held that while it was assessee''s burden to furnish explanation relating to cash credit but burden does not extend beyond proving the existence of the creditor and proving that such creditor owns to have advanced amount credited in the account of assessee. However, burden does not go beyond to put assessee under an obligation further to prove that wherefrom the creditor has procured the money to be deposited or advanced to the assessee. The fact that explanation furnished by the creditor about his source of such advance has not been accepted by Revenue authorities cannot lead to any presumption that source of such advance by creditor emanated from assessee and therefore, such addition for unexplained cash credit was not sustained where the confirmations were filed. Further, Hon''ble Tribunal, Jaipur Bench in the case of Mahendra Kumar Sethi v. ITO in ITA No. 814/Jp/2008, dt. 31st March, 2009 has held that in case of cash credit the assessee has discharged his onus by filing confirmation letters and affidavits of cash creditors and the onus is shifted to the Department to prove that deposit made by the creditor is money belonging to assessee himself. They have referred Rajasthan High Court judgment in the case of Aravali Trading Co. Vs. Income Tax Officer, in which it was held that once the existence of the creditor is proved and such persons owns the credit, the assessee''s onus stands discharged and assessee is not required to prove the source from which the creditor could have acquired the money deposited with him. When identity of the cash creditor is not in doubt and assessee has filed confirmation letter where said creditor owned the credit and under these circumstances the addition made under s. 68 as unexplained cash credit was deleted. Considering the aforesaid factual and legal analysis of submission and evidence in my considered view the AO was not justified in making aforesaid addition of Rs. 39,40,000 under s. 68 of IT Act and AO is hereby directed to delete the same.

In the appeal preferred by the Revenue, the Tribunal, in its impugned order dt. 30th May, 2011, found the approach of the CIT(A) justified and proceeded to dismiss the appeal with the following observations:

After considering the orders of the AO and learned CIT(A) and various details in shape of confirmations from the share applicants as well as from the creditors who also directors of the company, copies of returns of income and computation along with their balance sheets, we find that all necessary requirement to prove the loan as genuine has been satisfied. Assessee has filed confirmations of respective parties, all the parties are assessed to tax. bank statement is also placed in the compilation, copies of returns along with balance sheet is also placed on record. Therefore, this is not a case that identity of the person, transaction of the amount concerned and source of funds are not proved. Therefore, we hold that neither addition could have been made on account of share application money nor addition on account of loans could have been made. The learned CIT(A) has taken into consideration all these facts and has also considered various cases of the Hon''ble Jurisdictional High Court and Hon''ble apex Court. Therefore, we see no reason to interfere with the finding of learned CIT(A) in respect to both the additions deleted by him. Accordingly, the order of learned CIT(A) is confirmed.

Seeking to question the orders so passed by the appellate authorities, the learned counsel for the appellant-Revenue has contended that the appellate authorities have not considered and appreciated the well reasoned order passed by the AO, and have acted illegally in granting relief to the assessee without cogent reasons. The learned counsel submitted that deletion of the addition of Rs. 13,15,000 on account of unexplained share capital contribution merely on the basis of confirmation is not justified particularly when creditworthiness and genuineness of the transaction of capital contribution from at least 3 of the alleged contributors were not found. The learned counsel further submitted that the AO had rightly made the addition of Rs. 39,40,000 on account of unexplained unsecured loans particularly when the assessee failed to furnish the requisite details such as confirmations, names, addresses, PANs of the creditors concerned despite repeated notices. According to the learned counsel, when the genuineness, creditworthiness and identity of those creditors could not be verified for want of requisite details, the AO had not committed any error in making the additions. The learned counsel submitted that the appellate authorities have failed to consider that the onus was on the assessee to prove that the creditors were the persons of means and about genuineness of the transaction and deletion of addition merely on the basis of confirmation cannot be considered justified.

In this matter, where the appellate authorities have dealt with the issues in accordance with law and have returned the findings after examining the explanations offered by the assessee and by the creditors, we are of opinion that no interference is called for in appeal.

The points as sought to be raised by the appellant-Revenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PANs and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company.

Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence, and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd., the Hon''ble Supreme Court held as under:

In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their index numbers were In the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.

In the case of CIT Vs. Chandra Prakash Rana this Court noticed similar nature grounds urged on behalf of the Revenue and found the same not leading to any substantial question of law. This Court noticed, observed, and held as under:

Learned counsel for the appellant (Revenue) contended that firstly Tribunal erred in accepting the explanation offered by assessee in relation to source of income. His second submission was that what was offered by assessee was no explanation and hence should not have been accepted and lastly learned counsel made sincere attempt on his part after taking us through factual scenario of the explanation and contended that it can never be taken as satisfactory explanation for deleting the addition made by AO. We do not agree to this submission for more than one reason.

In the first place, it is a pure question of fact, what to say question of law, much less substantial question of law. Secondly, this Court cannot again in this appeal undertake the examination of factual issues nor can draw factual inferences on the basis of explanation offered by assessee. Thirdly, once the explanation is accepted by the two appellate Courts i.e. CIT(A) and Tribunal in this case, then in such event, a concurrent finding recorded on such explanation by two appellate Courts is binding on the High Court.

Perusal of impugned finding quoted supra would go to show that Tribunal did examine the explanation offered by assessee in detail and then recorded a finding for its acceptance. Such finding when challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order.

In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out.

In our view, no such error could be noticed by us in the impugned order because as observed supra, the Tribunal did go into the details of explanation offered by assessee and then accepted the explanation by placing reliance on the documents filed by assessee. As a consequence thereof, the additions made by AO came to be deleted.

In Commissioner of Income Tax Vs. Shree Barkha Synthetics Ltd., in a similar nature matter, this Court observed that the Tribunal having found that the companies from which the share application money had been received by the assessee-company were genuinely existing and the identity of the individual investors was also established and they had confirmed the fact of making investment, the finding that assessee had discharged initial burden and addition under s. 68 could not be sustained, was essentially a finding of fact. This Court said,--

A perusal of the aforesaid finding goes to show that deletion has been made on appreciation of evidence, which was on record. Findings that there was existence of investors and their confirmation has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to question of law, which may be required to be considered in this appeal under s. 260A of the IT Act.

The ratio of the decisions aforesaid directly applies to the present case too. Herein, as noticed, the appellate authorities have returned the findings of fact in favour of the assessee after due appreciation of the evidence on record, on relevant considerations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all. Thus, no case for interference in the findings of the appellate authorities is made out. In the result, the appeal fails and is, therefore, dismissed.