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.