Commissioner Of Income Tax, Delhi ... vs Kinetic Capital Finance Ltd.
2011 Latest Caselaw 4293 Del

*                  THE HIGH COURT OF DELHI AT NEW DELHI

%                                 Judgment delivered on: 02.09.2011

+                         ITA No. 87/2007


COMMISSIONER OF INCOME TAX
DELHI - II                                                ...... APPELLANT

                                      Vs


KINETIC CAPITAL FINANCE LTD.                             ..... RESPONDENT

Advocates who appeared in this case:

For the Appellant: Mr N.P. Sahni, Sr. Standing Counsel.

For the Respondent: None

CORAM :-

HON'BLE MR JUSTICE SANJAY KISHAN KAUL HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may be allowed to see the judgment ?

2. To be referred to Reporters or not ?

3. Whether the judgment should be reported in the Digest ?

RAJIV SHAKDHER, J

1. At the outset, we may note that, in the captioned appeal, the

Division Bench of this Court vide order dated 05.10.2007 had directed

the revenue to confirm as to whether the order passed by the Income

Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal') for

the assessment year 1997-98 in respect of the same issue, had been

accepted by it. This information was not supplied till, the hearing

held today. We have been informed by Mr Sahni, who appears for

the revenue, that the order of the Tribunal for assessment year 1997-

98 was challenged by way of an appeal bearing ITA No. 938/2005. A

Division Bench of this court vide order dated 05.10.2005 dismissed

the said appeal on the ground that no substantial question of law

arises for consideration.

2. There is yet another aspect of the matter, which is, that even

though notice was issued to the assessee by an order dated

15.07.2009, despite several opportunities having been granted to the

revenue, the service, has not been effected on the assessee. Even

on the last date, i.e., 03.08.2011, a further opportunity had been

granted to the revenue in that regard. It appears that the assessee

remains unserved, as the revenue neither possesses particulars of

the fresh address of the assessee nor has the assessee been filing its

return for the past six-seven years, as per information received by Mr

Sahni from the Dy. Commissioner, Income Tax vide letter dated

01.08.2011; a copy of which has been placed on record. In the

aforesaid circumstances, we are forced to examine whether in the

facts and the circumstances of the case, in the year in issue, i.e.,

assessment year 1998-99, any substantial question of law arises for

consideration.

3. The brief facts, which are required to be noticed in this regard,

are as follows:

3.1 The assessee filed his return of income on 30.11.1998, which

was followed by a revised return filed on 28.12.1999. During the

course of scrutiny it appears that that the Assessing Officer (in short

'A.O.') discovered that the assessee had received deposits from

eighty six (86) persons. The assessee was, in these circumstances,

asked to explain the credits found qua these deposits in its books of

accounts. The A.O. during the course of scrutiny also issued

summons to the said eighty six (86) persons. Out of these eighty six

(86) persons, sixteen (16) persons acknowledged the receipt of

summons and admitted to the fact that they had deposited money

with the assessee. The A.O., however, was not satisfied qua the

remaining 70 depositors, that the assessee, had been able to

discharge its onus that the amounts in issue, did not belong to the

assessee. In this connection, the A.O. alluded to the following effect:

(i) the fixed deposit forms were filled up in a manner which was

clumsy;

(ii) One depositor by the name of Ms Pamela Manmohan Singh,

who had visited his office, had returned envelopes in respect of four

other persons and made a statement on oath that the said four

persons did not reside at the address given; which was her own

address;

(iii) the said Pamela Manmohan Singh also adverted to the fact that

she was unaware of any deposits made either by her husband, who

had passed away on 02.06.1999, or those made in the name of her

married daughter, residing in Mumbai as also her grandson living with

his mother in Delhi. To be noted, the said Pamela Manmohan Singh,

while adverting to the fact that she was unaware of the deposits

made in the name of her family members referred to above, also

stated that she was not in a position to categorically deny the factum

of such deposits having been made at all. Ms Pamela Manmohan

Singh went on to say that she will check the position with the

chartered accountant engaged by her husband. It is a matter of

record that no further information was received from Ms Pamela

Manmohan Singh;

(iv) 'A few' envelopes were returned by postal authorities with a

noting that addressees were not available at the given address. By

way of example the A.O. referred to two returned envelops addressed

to one Runen Roy at two different addresses.

3.2 Based on the aforesaid discrepancies, including the statement

of Ms Pamela Manmohan Singh, that the addresses of four depositors

were fictitious, the A.O. refused to accept, as credible evidence, the

confirmatory letters submitted by the assessee in respect of the

deposits made.

3.3 The A.O. accepted, however, the submission made on behalf of

the assessee that the addition could be made only in respect of fresh

deposits made during the current year, and not those which were

only renewed during the period in issue. Accordingly, the A.O.

proceeded to make an addition amounting to ` 46,40,978/- as an

unaccounted income of the assessee.

3.4 Aggrieved by the order of the A.O., the assessee preferred an

appeal with the Commissioner of Income Tax (Appeals) [hereinafter

referred to as 'CIT(A)']. The CIT(A) examined the matter at great

length. In paragraph 5 the CIT(A) recorded the errors which the A.O

had made according to the assessee. These broadly were as follows:

(i) even though the A.O. had accepted that the deposits made by

sixteen (16) persons were genuine, the same were included in the

addition made by the A.O.;

(ii) in case of Mr Manmohan Singh, i.e., the husband of Ns Pamela

Manmohan Singh, the deposits made had subsequently been repaid

alongwith the interest, to Ms Pamela Manmohan Singh, thus

establishing the identity of the depositor(s);

(iii) the returned envelopes of Runen Roy was a case of renewal of

an earlier deposit and hence, no addition was called for in the

relevant assessment year. This was also the circumstance obtaining

vis-a-vis another investor, i.e., one Mr N.C. Desai. Thus, no additions

were required to be made in that regard in the assessee's income;

(iv) in the relevant assessment year the assessee had deposits

from eighty six (86) persons aggregating to ` 1,08,54,463/-. Out of

which a sum of ` 62,13,485/- were deposits received in earlier years

but renewed in the assessment year in issue, i.e., 1998-99. In these

circumstances, the addition made by the A.O. qua fresh deposits was

made on a completely ad hoc basis;

(iv) the assessee is a quoted 'limited' company having five

branches in different parts of the country. As a Non-Banking

Financing Company (in short 'NBFC'), it is registered with the Reserve

Bank of India (in short 'RBI'). The deposits in the earlier years had

been invited from general public through advertisements;

(v) as a matter of fact A.O. had zeroed down ultimately on ten (10)

entities/ persons which, according to him, were not genuine. Out of

these ten (10) entities only four (4) had made deposits with the

assessee during the relevant assessment year. The amount

attributable to the said four (4) entities was only ` 17 lacs. The

entries pertaining to the remaining six (6) persons were not relevant

in respect of the assessment year in issue;

(vi) as regards the four (4) entities, with respect to which issues

had been raised by the A.O.; these issues did not survive as the said

four (4) entities had accepted the factum of having made deposits

with the assessee;

(vii) the deposits have been accepted through account payee

cheques, and tax have been deducted by the assessee at source,

which in turn, had been duly deposited with the government treasury.

The deposits had also been further repaid to the said four (4) entities/

persons. None of the persons had given any statements contrary to

what the assessee had stated. These four (4) entities/ persons being:

Manmohan Singh, Manjit Malhotra, N.C. Desai and Runen Roy. To be

noted the details pertaining to these four (4) entities/ persons are

discussed in detail in paragraphs 5(ix) to (xiii), hence we do not

propose to dialate upon the same in order to avoid prolixity.

(viii) and lastly, the assessee had supplied photocopies of fixed

deposit(s) application forms which, contained full particulars of the

depositors.

3.5 Based on the above material placed before the CIT(A), he

concluded as follows:

"....I have considered the submissions very carefully. The AO's action does call for interference. First, there is no justifiable reason in making an addition in the cases of those 16 persons where the deposits had been accepted as per the AO's own admission. Second, there is no justification in making an addition on account of these deposits which were, merely the renewals of earlier year's deposits which had been accepted as genuine. Third, even in the balance four persons, since, the deposits had been accepted by a/c payee cheque and there is adequate information provided by the appellant, additionally, no case is made out for any addition in the light of judgments supra and in view of the facts and circumstances in each case. The appellant appears to have discharged its primary onus by showing that it accepted the deposits bonafidely from the general public. Addition, which has been made without bringing any supportive material, is not sustainable. The same is deleted...."

3.6 The revenue being aggrieved preferred an appeal with the

Tribunal. The Tribunal recorded a finding of fact in paragraph 7 that

the assessee had placed on record copies of applications, cheque

numbers, name of banks, amount received, copies of confirmation of

some of the investors. It further observed that merely because

certain application forms of depositors did not contain their PAN and

GIR number(s), cheque number(s) and draft number(s) would not

make the forms invalid. The fact that notices had been issued to all

eighty six (86) persons and that some of them did not respond to the

same, could not result in an adverse finding being returned against

the assessee. It also noted the fact that assessee was a public

limited company and registered with the RBI as NBFC, and that its

shares were quoted on major stock markets of the country.

3.7 Taking into account these factors the Tribunal came to the

conclusion that the A.O had erred in coming to the conclusion which

he did, merely because of the reason that some investors had chosen

not to respond to the notices, or the assessee had not been able to

produce the investors.

4. Being aggrieved, as noted above, the revenue preferred the

captioned appeal. In support of the appeal filed by the revenue, Mr

Sahni, Advocate advanced arguments. Mr Sahni submitted that the

findings of the Tribunal in paragraph 7 of the impugned judgment

that none of the notices, issued to the investors, were received back

was perverse as the A.O. had recorded in his order that some of the

summons had been returned. Mr Sahni went on to submit that while

the A.O. had not made any additions with respect to sixteen (16)

persons, who had responded to the summons, the additions qua the

remaining 70 persons ought to be sustained in view of the findings

recorded by the Tribunal.

5. Having heard Mr Sahni, we are of the view that the appeal

deserves to be dismissed. As noted above, the CIT(A) in his order

has, it appears, examined the matter in detail. After examining

matter in detail it is quite evident that the discrepancy, if at all, out of

the seventy (70) investors ultimately veered around to ten (10)

investors. Even out of the ten (10) investors, six (6) entities/ persons

had made deposits in the year prior to the assessment year in issue.

The remaining four (4) persons, who had made deposits in the

relevant assessment year, i.e., assessment year 1998-99, had

furnished details with respect to the deposits, and also acknowledged

the fact that since then, money had been returned to them. The fact

that these investors had received interest, and that tax had been

deducted at source, is also noted in the order of the CIT(A). These

findings of the CIT(A) have not been impugned before us. As has

been noted in CIT(A)'s order the exercise carried out by the A.O. was

so ad hoc that in his enthusiasm he forgot to give credit even for

those deposits which, according to him, were genuine. These were

deposits pertaining to sixteen (16) persons who had responded to the

summons issued by him. These deposits, as per the CIT(A)'s order

amounted to ` 7,40,000/-, which the A.O. for some curious reason

had thought fit to include in the total addition made in the income of

the assessee amounting to ` 46,40,978/-.

6. In so far as the assessment year in issue is concerned, we are

not made any wiser as to which specific entry the A.O. had found

fault with, given the fact that names of the depositors were known. It

has to be borne in mind that while making an addition under Section

68 of the Income Tax Act, 1961 (in short 'I.T. Act') the A.O. has to

advert to each and every entry and not pick up a couple of entries, as

in the present case, and label the entire set of deposits made during

the assessment year as undisclosed income of the assessee. As

noticed above, the discrepancy appeared qua four (4) credits, which

were answered suitably to the satisfaction of the CIT(A); therefore, it

is not understood how the A.O. could make an ad hoc addition of `

46,40,978/-.

7. The Tribunal, in our view, has correctly appreciated the position

in law which is that when an unexplained credit is found in the books

of account of an assessee the initial onus is placed on the assessee.

The assessee is required to discharge this initial onus. Once that

onus is discharged, it is for the revenue to prove that the credit found

in the books of accounts of the assessee is the undisclosed income of

the assessee. In the circumstances obtaining in the present case, in

our view, the assessee has discharged that initial onus. The assessee

is not required thereafter to prove the genuineness of the

transactions as between its creditors and that of the creditors' source

of income, i.e., the sub-creditors [See Nemi Chand Kothari vs CIT

& Anr. (2003) 264 ITR 254 and judgment of this court in ITA No.

1158/2007 Mod Creations Pvt. Ltd. vs Income Tax Officer

decided on 29.08.2007].

8. The Tribunal is the final fact finding authority. The Tribunal

appears to have been satisfied with the quality of the evidence

placed before it. We find no perversity in the findings,

notwithstanding the stray sentence in its order pertaining to service

of depositors. In these circumstances, we are not persuaded to upset

the findings returned by the Tribunal. In our view no substantial

question of law arises for our consideration. The appeal is,

accordingly, dismissed.

RAJIV SHAKDHER, J

SANJAY KISHAN KAUL,J SEPTEMBER 02, 2011 kk