Monday, 4 August 2014

Synopsis of Mithila Credit Services Limited Vs ITO (ITAT Delhi) Caselaw

Mithila Credit Services Limited Vs ITO (ITAT Delhi)

Primary burden is on AO to show that share application money is assessable as unexplained cash credit. AO cannot sit back with folded hands & simply reject assessee’s evidences.

Sections involved: Section 68, Section 148

Facts of the case:  Assessee carried on financing business, Return of Income was filed declaring NIL Income for Assessment Year 2002-2003. The case was selected for scrutiny and the AO made additions of Rs. 400,000/- on account of share application money u/s 68 of the Income-tax Act.

Contentions of Revenue: During the course of assessment proceeding, the assessee was given adequate opportunity to substantiate its claim of share capital received with relevant supporting evidences so as to discharge its onus u/s 68 of the Act. As the assessee failed to do so, the AO made certain enquires with the bankers about the purported share applicants, which revealed that during the stated financial year, there were huge deposits of cash in their respective bank accounts from a firm M/s Gupta and Gupta. Further to verify the veracity of the claim, it was found that no such firm exists. This had resulted into suspicion in the eyes of the revenue regarding the genuineness of the transaction and lead to reopening the case u/s 148 read with section 147 of the Income-tax Act, 1961.

Contentions of the Assessee: The assessee contended that there is no mention of any tangible material on the basis of which the Assessing Officer has made such a serious allegation and reached a pre-determined conclusion to re-open the assessment. Thus, there is no cause and effect relationship established in the reasons recorded by the Assessing Officer, that income has escaped assessment in order to reopen the case. Thus concluded that the two companies have in fact applied for the shares and it was a genuine transactions and it was not accommodation entries. As the department had no concrete information/material against the assessee, there is clear violation of natural justice. Merely on the basis of suspicion the case cannot be reopened.

Conclusion: Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the AO and after discharging this burden only, the onus shifts to the shoulder of the assessee. There are two types of cases; One in which the AO carries out the exercise which is required in law and the other in which AO ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. On facts, nothing has been brought on the record by the AO to substantiate his serious allegation that these two entries are accommodation entries which was the sole ground and basis of reporting.

The assessee produced the necessary documents before the authorities and discharged the obligation to explain the transaction with it. If the AO was still not satisfied with the aforesaid documents & explanation of the assessee, he should have resorted to Sec 131 and other provisions in the Act to investigate and check the veracity of the documents. A cloud of suspicion and doubt can be raised by stating a lot of cash was deposited in the accounts of M/s Gupta and Gupta and immediately thereafter cheque transaction could be evident from the side of M/s Gupta and Gupta to some other person/legal entity. However, a judicially trained mind will search from the said cloud brought before it, relevant admissible evidences if any from the records before it, to see whether the said evidence support the transaction as alleged by the AO which is under consideration before it, and not get swayed by the other irrelevant materials which comes on record.
Suspicion howsoever cannot take the place of evidence or proof.

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