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Entry in the Bank Statement cannot be treated as unexplained under section 68 of IT Act

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Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Facts, in brief, as per relevant orders are that e-return declaring income of ``32,780/- filed on 21.11.2006 by the assessee, engaged in the business of manufacturing and trading in home furnishing, after being processed u/s 143(1) of the Income-tax Act, 1961[hereinafter referred to as the ‘Act’], was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed to have received share capital of ``10 lacs from M/s Melco Sales Pvt. Ltd. and ``5 lacs from M/s Poonam Corporation Ltd. In response to a notice u/s 133(6) of the Act ,M/s Melco Sales Private Ltd. Vide reply dated 27.11.2008 informed that they had purchased 10,000/- equity shares of ``10/- each at a premium of ``90/- per share of M/s Golden Home Furnishing Pvt. Ltd. for which payment was made through cheque no.134685 dated 02.03.2006 for ``5 lacs and cheque no.135103 dated 8.3.2006 for ``5 lacs drawn on ABN Amro Bank. However, the said company did not furnish their bank statement in support. Similarly M/s Poonam Corporation Limited informed that they had applied for equity shares of M/s Golden Home Furnishing Pvt. Ltd. For ``5 lacs during the financial year and payment was made through cheque no.858141 dated 23.02.2006 for ``5 lacs drawn on ABN Amro Bank. Later bank statements of both the aforesaid concerns were submitted by the AR of the assessee company along with a letter dated 18.12.2008. However, the AO did not accept the submissions of the assessee on the ground that the transactions did not match with the confirmations filed by the share applicants vis-à-vis submitted by the assessee company. It was pointed out that the assessee company informed that they had received subscription towards share capital through DDs. Moreover, the credit entry in the PNB a/c of the assessee reflected deposit of cheque no. 134685 dated 02.03.2006 for `5 lacs and cheque no.135103 dated 8.3.2006 for ``5 lacs while debit entry as per bank statement of M/s Melco Sales Pvt. Ltd. reflected DD issued. Likewise in the case of M/s Poonam Corporation Ltd., the assessee stated that the payment was made vide cheque no.858141 dated 23.02.2006 while the credit entry in the PNB account of the assessee company showed deposit of cheque no.858141 on 22.02.2006 a day earlier than the date of issue of cheque by M/s Poonam Corporation Ltd. In view of these discrepancies , the amount of ``10 lacs received from M/s Melco Sales Pvt. Ltd. and ``5 lacs from M/s Poonam Corporation Ltd., as share application ,remaining unverifiable, the AO added the same as income of the assessee from undisclosed sources in terms of the provisions of section 68 of Act.

Citation :
Income-tax Officer, Company Ward-12(2), Room no.337, C.R. Building, IP Estate, New Delhi (Appellant) V/s M/s Golden Home Furnishing Pvt. Ltd., 671, Katra Neel, New Delhi [PAN: AAACG 0463 A] (Respondent)

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘C’ BENCH

BEFORE SHRI R.P. YADAV, JM & SHRI A.N. PAHUJA, AM

ITA No.2059 /Del/2011

Assessment year: 2006-07

Income-tax Officer,

Company Ward-12(2),

Room no.337, C.R.

Building, IP Estate, New

Delhi

(Appellant)

V/s

.

M/s Golden Home Furnishing

Pvt. Ltd., 671, Katra Neel,

New Delhi

[PAN: AAACG 0463 A]

 (Respondent)

Assessee by: Shri Rajesh Arora, AR

Revenue by: Shri Satpal Singh,DR

Date of hearing: 26-06-2012

Date of pronouncement: 28-06-2012

O R D E R

A.N.Pahuja:-

This appeal filed on 26.04.2011 by the Revenue against an order dated 18.02.2011 of the ld. CIT(A)-XXVI, New Delhi, raises the following grounds:-

1. “On the facts and circumstances of the case the CIT(A) has erred in deleting the addition of ``15,00,000/- on account of unexplained cash credits u/s 68 of the Income-tax Act.

2. On the facts and circumstances of the case the CIT(A) has erred in deleting the addition of ``15,00,000/- made u/s 68 of I.T. Act ignoring the fulfillment of the condition laid down by the Law.

3. The appellant craves to add, alter, amend, delete or withdraw any ground of appeal during the course of appellate proceedings.”

2. Facts, in brief, as per relevant orders are that e-return declaring income of ``32,780/- filed on 21.11.2006 by the assessee, engaged in the business of manufacturing and trading in home furnishing, after being processed u/s 143(1) of the Income-tax Act, 1961[hereinafter referred to as the ‘Act’], was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed to have received share capital of ``10 lacs from M/s Melco Sales Pvt. Ltd. and ``5 lacs from M/s Poonam Corporation Ltd. In response to a notice u/s 133(6) of the Act ,M/s Melco Sales Private Ltd. Vide reply dated 27.11.2008 informed that they had purchased 10,000/- equity shares of ``10/- each at a premium of ``90/- per share of M/s Golden Home Furnishing Pvt. Ltd. for which payment was made through cheque no.134685 dated 02.03.2006 for ``5 lacs and cheque no.135103 dated 8.3.2006 for ``5 lacs drawn on ABN Amro Bank. However, the said company did not furnish their bank statement in support. Similarly M/s Poonam Corporation Limited informed that they had applied for equity shares of M/s Golden Home Furnishing Pvt. Ltd. For ``5 lacs during the financial year and payment was made through cheque no.858141 dated 23.02.2006 for ``5 lacs drawn on ABN Amro Bank. Later bank statements of both the aforesaid concerns were submitted by the AR of the assessee company along with a letter dated 18.12.2008. However, the AO did not accept the submissions of the assessee on the ground that the transactions did not match with the confirmations filed by the share applicants vis-à-vis submitted by the assessee company. It was pointed out that the assessee company informed that they had received subscription towards share capital through DDs. Moreover, the credit entry in the PNB a/c of the assessee reflected deposit of cheque no. 134685 dated 02.03.2006 for `5 lacs and cheque no.135103 dated 8.3.2006 for ``5 lacs while debit entry as per bank statement of M/s Melco Sales Pvt. Ltd. reflected DD issued. Likewise in the case of M/s Poonam Corporation Ltd., the assessee stated that the payment was made vide cheque no.858141 dated 23.02.2006 while the credit entry in the PNB account of the assessee company showed deposit of cheque no.858141 on 22.02.2006 a day earlier than the date of issue of cheque by M/s Poonam Corporation Ltd. In view of these discrepancies , the amount of ``10 lacs received from M/s Melco Sales Pvt. Ltd. and ``5 lacs from M/s Poonam Corporation Ltd., as share application ,remaining unverifiable, the AO added the same as income of the assessee from undisclosed sources in terms of the provisions of section 68 of Act.

3. On appeal, the ld. CIT(A) deleted the addition, holding as under:-

“4.8 I have considered the submissions of the Ld. Counsel as also the facts and evidences on record. It appears that there has been an error in stating the facts before the Assessing Officer. With regard to the investment of `.5 lacs received from M/s. Melco Sales Pvt. Ltd. on 2.3.2006, while the appellant has stated that the amount has been received through demand draft, the share applicant i.e. M/s. Melco Sales Pvt. Ltd. has stated u/s 133(6) that the payment has been made vide cheque no.134685. However the instrument nn.134685 is not a cheque but demand draft. Photocopy of the instrument has been placed on record which shows it to be a demand draft. It has been cleared in the appellant's bank account no.4189008700000100 PNB, Panipat on 3.3.2006. The amount has been debited in the bank account no.1165533 ABN Amro Bank in the name of M/s. Melco Sales Pvt. Ltd. Thus though the instrument no.134685 was correctly mentioned but M/s. Melco Sales wrongly stated it to be a cheque and this fact was also wrongly stated in the share application forms. However as the bank accounts of both parties reflect the transaction, it is held that the error in stating the demand draft particulars as cheque particulars is only in the nature of a clerical mistake. As the payment is duly accounted for in the bank statement of both the parties, the error does not have any implication on the genuineness of the cash credit being share application money received from M/s. Melco Sales Pvt. Ltd. Therefore with regard to this sum of `.5 lacs in view of the simple error in wrongly stating the demand draft to be a cheque instrument while the number of instrument was correctly stated, it is held that the appellant has been able to satisfactorily explain the receipt of the cash credit of `5 lacs from M/s Melco Sales Pvt. Ltd. as share application money. The appellant has been able to prove all three essential ingredients for establishing the genuineness of the cash credit under section 68 i.e. identity of the creditor, genuineness of the transaction and credit worthiness of the creditor. It is accordingly held that this amount cannot be treated as an unexplained cash credit U/S 68 of the IT Act.

4.9 With regard to the remaining amount of `.5 lacs deposited by M/s. Melco Sales Pvt. Ltd., it is seen that M/s. Melco Sales Pvt. Ltd. on 8.3.3006 directed its bankers to prepare demand draft of `.5 lacs each for payment to the appellant as well as M/s. Fast Stone Trading Pvt. Ltd. In the case of the appellant demand draft no.135103 dated 8.3.2006 for `.5 lacs was prepared and in the case of M/s. Fast Stone Trading Pvt. Ltd. demand draft no.135102 was prepared for `.5 lacs. Therefore while M/s. Melco Sales Pvt. Ltd. confirmed payment by cheque, the fact is that the payment has been made by demand draft and instrument no.135103 was wrongly narrated as cheque whereas it was a demand draft. Photocopy of the demand draft shows the particulars. The bank account no.116557 ABN Amro Bank of M/s. Melco Sales Pvt. Ltd. shows a debit entry of ` `10,00,000, out of which `.5 lacs has been issued in favour of the appellant and `.5 lacs in favour of another party. The appellant's bank account no,4189008700000100 PNB, Panipat reflects the credit of `.5 lacs against the demand draft no.135103 on 9.3.2006. It is thus seen that M/s. Melco Sales Pvt. Ltd. wrongly stated the instrument of payment to be cheque whereas it was a demand draft. Though an error crept in the incorrect stating of the nature of instrument, the source of investment however remains totally explained. The amount of `.5 lacs has emanated from the bank account of M/s. Melco Sales Pvt. Ltd. and the appellant has received it as share application money in its bank account.

In view of the evidences on record, the mismatch as observed by the Assessing Officer is found to be duly explained by the entries in the bank statement of the appellant as well as the share applicant. There is therefore no case for treating the remaining amount of `.5 lacs received from M/s. Melco Sales Pvt. Ltd. as unexplained cash credit. It is accordingly held that this amount is also fully explained in terms of section 68 of the IT Act.

4.10 The balance addition of `.5lacs pertains to the share application money of `.5 lacs received from M/s. Poonam Corporation Pvt. Ltd. The Assessing Officer observed that the appellant had stated receipt of `.5 lacs as share application money by way of demand draft on 23.2.2006. The Assessing Officer on examination of the bank statement of the appellant observed that the amount had been credited on 22.2.2006 and the creditor had confirmed payment by cheque. In view of this discrepancies/mismatch the amount was treated as unexplained receipt and added under section 68.

4.10.2 Against the addition made by the Assessing Officer, the Ld. Counsel made the following submissions:-

"As regard the share application money of `.5,00,000 received by assessee company from M/s. Poonam Corporation vide instrument nO.858141 dated 23.2.2006, the Assessing Officer has stated that PNB account shows credit of `.5,00,000 on 22.2.2006, i.e. a day earlier than the date of the issue. Hence the Assessing Officer observed that there was a complete mismatch in both the transactions. From the perusal of the PNB account of assessee company, it would be observed that the instrument no.858141 was issued on 21.2.2006 and not 23.2.2006 and the same was credited in the account of assessee company on 23.2.2006. The bank had wrongly credited the assessee's account on 22.2.2006 which was revered by the bank as can be noted from the bank statements. The instrument was ultimately credited to the account of Assessee Company only on 23.2.2006. However, the Assessing Officer noticed the entry of credit and presumed that there exists mismatch whereas the reversal of the entry on 23.2.2006 and ultimate credit entry on 23.2.2006 went unnoticed. Hence, there is no mismatch even to this transaction. However, in the confirmation of account, the date of ultimate clearing was mentioned by the share applicant instead of the date of issue of the instrument."

4.10.3 The above explanation of the Ld. Counsel is found to be correct. A perusal of the appellant's bank statement shows the credit of `.5 lacs on 22.2.2006 and a contra entry of the same on 23.2.2006 bearing narration of "858141SDL 006300 wrongly cleared." Thereafter after more entries on 23.2.2006 itself, the cashiers cheque i.e. demand draft nO.858141 has been credited through clearing. Thus the Demand draft deposited on 22.2.2006 has been reversed by the contra entry of 23.2.2006 and the very same Demand draft has been subsequently cleared on 23.2.2006. The Bankers of M/s. Poonam Corporation has issued the Demand draft on 21.2.2006. The confirmation of the M/s. Poonam Corporation to the Assessing Officer that the payment has been by way of Cheque is apparently a wrong statement of fact. Such wrong statement though not desirable has no effect on taxability of the appellant as the fact of receipt of `.5lacs is evidenced by the entries in the respective bank accounts of the giver and the receiver and it is apparent that the reference to the mode of payment as demand draft instead of cheque is merely a clerical error by the share applicant. Similarly the Assessing Officer's observation regarding deposit of the instrument on 22.2.2006 in the appellant's bank account reflects observation of only half the facts. The other half regarding the contra entry and subsequent clearing only on 23.2.2006 has been apparently overlooked.

In the light of the facts discussed above, it is held that in the case of receipt of `.5 lacs as share application money from M/s. Poonam Corporation Ltd. the appellant has discharged its onus by establishing the identity of the share applicant, the genuineness of the transaction as well as the credit worthiness of the investor. Therefore the addition of RS.5 lacs made by the Assessing Officer as an unexplained cash credit is held to be unjustified.

4.11 Thus in view of the facts and evidences as discussed above, it is held that the entire addition of `.15 lacs under section 68 relating to the share application money is unwarranted and is accordingly deleted.”

4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee company relied upon the findings in the impugned order.

5. We have heard both the parties and gone through the facts of the case. Indisputably, certain discrepancies crept in while furnishing the information requisitioned by the AO from the assessee in respect of the aforesaid amount of ``10 lacs from M/s Melco Sales Pvt. Ltd. and ``5 lacs from M/s Poonam Corporation Ltd. towards share application money vis-à-vis information obtained by the AO from the aforesaid two companies u/s 133(6) of the Act. After examining the relevant details and documents including bank statements of the assessee and share applicants, the ld. CIT(A) concluded that in view of the evidences on record, the mismatch as observed by the AO is duly explained by the entries in the bank statement of the assessee as well as the share applicant and the assessee discharged its onus by establishing the identity of the share applicants, the genuineness of the transaction as well as the credit worthiness of the investors. Accordingly, the ld. CIT(A) deleted both the additions. The ld. DR did not place before us any material, controverting the aforesaid findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter. In the absence of any basis, we are not inclined to interfere. Therefore, ground nos.1 & 2 in the appeal are dismissed.

6. No additional ground having been raised in terms of residuary ground no.3 in the appeal, accordingly, this ground is dismissed.

7. No other plea or argument was made before us.

8. In the result, appeal is dismissed.

Order pronounced in open Court

                                                          Sd/-                   Sd/-

                                           (RAJPAL YADAV) (A.N. PAHUJA)

                                             (Judicial Member) (Accountant Member)

NS

Copy of the Order forwarded to:-

1. Assessee

2. Income-tax Of f icer, Company Ward-12(2), Room no.337, C.R. Building, IP Estate,New Delhi

3. CIT concerned

4. CIT(A)-XXVI, New Delhi

5. DR, ITAT,’C’ Bench, New Delhi

6. Guard File.

By Order,

Deputy/Asstt.Registrar

ITAT, Delhi

 

CS Bijoy
on 01 August 2012
Published in Income Tax
Views : 2298
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