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“Assessment Proceedings & Appeals under the Income Tax Act, 1961” “Assessment Proceedings & Appeals under the Income Tax Act, 1961” Ajay Wadhwa Chartered.

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Presentation on theme: "“Assessment Proceedings & Appeals under the Income Tax Act, 1961” “Assessment Proceedings & Appeals under the Income Tax Act, 1961” Ajay Wadhwa Chartered."— Presentation transcript:

1 “Assessment Proceedings & Appeals under the Income Tax Act, 1961” “Assessment Proceedings & Appeals under the Income Tax Act, 1961” Ajay Wadhwa Chartered Accountant A-445, Ground floor, Defence Colony, New Delhi #

2 ASSESSMENT PROCEEDINGS 2

3 1. First step - Examine Service of notice u/s 143(2)  No notice u/s 143(2) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.  Issued and served not synonymous – by speed post served beyond due date. Vardhman Estate 287 ITR 368 (Del), 287 ITR 370(Del) : BHPE Kinhill Joint Venture v. ADIT [2009] 116 ITD 123 (Del ITAT)  Burden of proof is on revenue that notice was served on the assessee - affidavit filed by assessee that it had not received any affidavit - Lunar Diamonds 281 ITR 1 (Del)  Date of service of notice is date of its actual receipt by assessee. [2014] 41 taxmann.com 509 (Delhi - Trib.) OIP Sensor Systems India Liaison Office 3

4 First step - Examine Service of notice  Section 282 of IT Act and CPC Rule 12 to 18 of Order V  Notice through process server  Service on security guard  Recording of service and report  Specific authority to receive - Rule 6 of Order 3- Jayanthi Talkies 120 ITR 576 (Mad), Dina Nath 204 ITR 667 (J&K)  Name address, identification and witnessing  Assessee acted on such notice in the past  Hind Book House 92 ITD 415 (Del), Sudev Industries Ltd 98 TTJ 97 (Del),  R.L.Narang 136 ITR 108 (Del)  DCIT v. Usha Stud & Agricultural Farms (P) Ltd. ITA Nos.910 to 912/Del/2010 (ITAT Delhi) 4

5 Procedural Compliances 1. Notice of scrutiny u/s 143(2) – Examine carefully. (as discussed in the first and second slide) 2. Make a careful and candid disclosure of facts on first hearing. 3. Power of Attorney filing. 4. Replicate order sheet entries and parallel file for record. 5. Do not resort to case laws except those of the Hon’ble Supreme Court 5

6 6 6. While filing the reply(s) during assessment proceedings: i. Filing details and requesting for limiting the scope of information. ii. Start by mentioning about earlier correspondence. iii. Mention the time of hearing and proceedings of the earlier hearing in submissions iv. Preferably number and index the documents filed v. Address each limb of the query thoroughly. vi. Mention “carrying books of account.” vii. Get reasons for scrutiny. viii. Be thorough with circulars on conduct of AO’s during scrutiny. ix. Be communicative in your submissions. x. Keep copies of documents filed xi. Inspection of file

7 7. Evidences to be confronted with  Principle of law: Evidence collected by the Department at the back of the assessee and used against him without confronting the same to the assessee - assessment null  Not allowing cross examination is procedural defect and will make an assessment null and void.  The evidences collected by the Department cannot be used against the assessee without affording the opportunity of cross examination.  CIT v. Ashwani Gupta [2010] 322 ITR 396/191 Taxman 51 (Delhi), Taxman 306 (Delhi), Dy. CIT v. GVS Investment (P.) Ltd. [2005] 146 Taxman 36 (Delhi) (Mag.), CIT vs SMC Share-brokers Ltd (288 ITR 435) (Del), CIT vs Pradeep Kr Gupta (303 ITR 95) (Del) 7

8 8. Filing of Affidavit or confirmation  Affidavit must be cross examined or AO must record assessee’s inability to file documents in support– Mehta Parikh 30 ITR 181(SC) : 253 ITR 454(Guj) : 129 ITR 373(Del), 33 ITR 786  Facts must be stated and must not be argumentative.  Need not enclose documents in support of affidavit  Taken to be a statement by assessee’s witness  it will not be open to the revenue to challenge the statements made by the deponent in their affidavits Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) 1959] 37 ITR 288 (SC)1959] 37 ITR 288 (SC)  The affidavit/confirmation cannot be rejected merely on the ground that the department is unable to verify its correctness 8

9 9. Recording of statement and evidence – Summons  Evidence to be confronted 239 ITR 859 (P&H) Arjun Dass Surinder Kumar & Co. -  Third party statement-at back of assessee- no cross examination -no adverse inference - Alok Aggarwal [2000] 67 TTJ 109 (Del ITAT)  Cross Examination – Examination of witness by adverse party-need not be confined to facts – omission to cross examine means truth of witness’s testimony not disputed  Re-examination  Order of examination  Improper questions  Assessment set aside – not tested by cross examination 9

10  Kalia Glue 167 ITR 498 (SC), Kishin Chand Chellaram 125 ITR 713 (SC)  Request for Summons by assessee duty of AO to enforce attendance of witness, 49 ITR 561 (All) CPC 1908 Order XVI Rule 10, 210 ITR 103 (Cal)  Statement recorded without corroborative evidence could not fasten any liability-Shree Ganesh Trading Co. V Commissioner of Income-tax (Jharkhand).  As per circular of CBDT No. 286/2/03- IT (Inv) dt. 10/3/03- no Confessional statement to be elicited.  No provision under the Law to seek copy of statement from revenue at the time of recording the same, however in case of statement being used against assessee, he may ask for its copy by relying on principles of natural justice and equity.  Other Provisions of CPC applicable, in case, the officers invoke section

11 10. Expenses verification  Where in respect of expense/debt, the person/creditor is not is not traceable, and the assessee has furnished all the possible documents and evidences at the time of assessment before the AO, no addition was warranted. CIT v. Ver Aar Leasingh & Finance Company Ltd. [2014] 223 taxman 110 (Allahabad HC)  Where the rate of tax remained the same and it is not as if the Revenue has been deprived of any tax, the period of taxing the benefit in question does not matter. CIT v. M/s Excel Industries Ltd. CIVIL APPEAL NO.125 OF 2013 (SC)  Capital/Revenue 11

12  Examination of expenses - test case  Burden of proof  Allowability  Exp to keep up corporate entity without business 38 TTJ 564(Del)  Exp. accruing but no entry passed in books Kedar Nath Jute (1971) – 82 ITR 363 (SC)  Prior period expenses – received bills/ vouchers previous year, Sterlite Industries 102 TTJ 53  Adhoc Disallowance: 200 ITR 64(Mad), Govind Glass & Industries Ltd v ACIT ( Ahd Trb) 93 Taxman 174, 177 CTR 194(Del), 258 ITR 575 –  Company car for personal use of Directors 96 Taxman 198 (Ahd) Trb, Shroff Engg ltd v ITO, 29 TTJ 22 (Del), 100 Taxman 25(Del)  Small persons no bills but payment voucher 42 TTJ 238 (Del)  ARM CHAIR OF BUSINESSMAN – no role of AO about reasonableness/quantum of exp, CIT v Dalmia Cement (P) Ltd [ 121 Taxman 706 (del), 254 ITR 377 (Del), CIT v. Walchand & Co. 65 ITR 381(SC), JK Woolen Mgs 72 ITR 612, Alumunium Corpn of India 86 ITR 11, Panipat Woolen & Gen Mill 103 ITR 66, - Interest : Whether or not loan should have been taken  Warranty exp- Vinitec Corporation 196 CTR 369 (Del  Exp allowable even if no details - commission paid – quantum AO can’t decide 254 ITR 377 (Del) b) 23 TTJ 231, 18 ITD 226, 32 ITD 650 (Del)- Foreign visit by Non employee, 33 TTJ 54 (JD), 46 TTJ 693 (Ahd), 240 ITR 291 (Mad) 12

13 11.Natural justice  Natural Justice – ‘ audi alteram partum’ – Party to be put on notice & reasonable opportunity – J T India v. Union of India (FD) – 177 CTR 108 (FB) Del, 176 ITR 169 (SC)  Order void if natural justice principles not followed, order passed in undue haste without proper hearing – M S Jewellery 122 CTR 155 (Ker),  Infraction of rules of Natural justice affects the legality & not jurisdiction – Order can’t be quashed CIT v. Bharat Kr Modi 246 ITR 693 (Bom)  Hearing opportunity can’t be made good in appeal – must be set aside 249 ITR 216 (SC)  When opportunity of hearing was not properly given - setting aside the assessment -Tin Box Co. v. CIT [2001] 116 Taxman 491 (SC). 13

14 Situations of violation of principles of natural justice  When Notice itself is not served.  When arbitrary orders are passed by the department without granting opportunity of personal hearing.  When relied upon documents or copies of seized documents are not provided by the department despite request letter submitted by the assessee.  When cross examination is denied.  When the written submission for the notice or for personal hearing is not considered.  When the request of modification stay application is not considered.  When fundamental rights of the petitioner guaranteed under articles 14 & 21 of the Constitution of India are not protected  When reasonable time for reply or for adjournment is denied without notice.  And among other reasons, when speaking order is not passed. 14

15 12. Burden of proof and onus  Burden is on assessee to prove source of receipt - Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC)/ Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC).  It is for the assessee to prove that even if the cash credit represents income, it is income from a source which has already been taxed - CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC).  Onus of the assessee stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. Orissa Corpn. (P) Ltd. [1986] 159 ITR

16 Burden of proof and onus  Where assessee in order to prove genuineness of transactions supplied address and PAN of concerned persons, it had discharged its primary onus. [2014] 43 taxmann.com 91  If explanation of assessee is unsatisfactory amount can be treated as assessee’s income-Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC).  Each entry must be separately explained by assessee  Assessee’s burden is confined to prove creditworthiness of creditor with reference to transaction between assessee and creditor. 16

17 13. BOARD CIRCULARS  No disallowance of claim contrary to judicial decision. Instruction No 1814 dt also 74 ITD 314 (Ahd).  Rules for inspection of documents. Circular No 17(XL- 36) dt  Department not to take advantage of ignorance of assessee. Allow deduction not claimed but allowable. Circular No 14 (XL-35) dt  Estimation of income – depreciation to be separately allowed. Circular No 29D(XIX)-14 dt  Circular not followed – scrutiny assessment quashed. Best Plastics 295 ITR 256 (Del) 17

18 14. Cash Credits Verification  Confirmation should establish identity, genuineness and creditworthiness of the lender/creditor.  20 yrs old credits Champaklal C. Dhamanwala (HUF) 34 ITD 209(Ahd), R.N. Goel 49 TTJ 251(Del), Jindal Udyog – 83 ITD 248(Chd),  Verification u/s 131 (summon) once confirmatory letter filed Sarogi Credit [1976] 103 ITR 344 (Pat), Hanuman Agarwal (1985) 151 ITR 150 (Pat), CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 130 TAXMAN 147 (CAL.)  CIT v. Orissa Corporation (P) Ltd (SC) – Revenue to examine source of income & credit worthiness of creditors 159 ITR 78 18

19  Burden of proof is on the taxpayer to prove the genuineness.  There must exist books of accounts before making addition under Section 68  Books of accounts must be of assessee himself and not of any other assessee. In Smt Shanta Devi v. CIT [1998] 171 ITR 532 (P&H)  Bank Pass book is not books of account for the purpose of Section 68. In CIT v. Bhaichand H. Gandhi [1983] 141 ITR 67 (Bom. HC) - CIT v. Ms. Mayawati [2011] 338 ITR 563 (Delhi HC)  The A.O must make proper enquiry before making any addition under Section 68. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) 19

20 APPEALS 20

21 1. Admission of additional evidence – Rule 46A Situations under which additional evidence maybe admitted by the CIT (A):  AO refuses to admit  Appellant prevented by sufficient cause to produce evidence called for by AO  Appellant prevented by sufficient cause any evidence relevant to ground of appeal  where the AO has made the order appealed against without giving sufficient opportunity * * * * * * * * * * * * * * * * * * * * 21

22  Interest of justice – Prabhavati S. Shah 231 ITR 1, 68 TTJ 722 (Rajkot).  Bonafide impression that AO satisfied with reply as no query raised: HLS Asia 121 TTJ 340 Del.  technical considerations are pitted against the cause of substantial justice it is the cause of substantial justice that must prevail. Collector Land Katji, 167 ITR 471 (SC)  Assessee was prevented by sufficient cause in not appearing due to confusion relating to jurisdiction of Assessing Officer - additional evidence produced by assessee were justified- [2014] 41 taxmann.com 282 (Punjab & Haryana) CIT Vs Safari Bikes Ltd.  No infirmity in the admission of the new evidence by theCIT(A) as the interest of the quasi-judicial proceedings is to render justice and not to deny justice by declining to admit new evidence. Income-tax Officer v. Bhagwan Dass, Contractor (ITAT- Chandigarh)  Additional evidence which is in the interest of justice and renders assistance to the authority in passing order, may be admitted. Dwarka Prasad v. ITO 63 ITD 1 22

23 Draft Application under Rule 46A Date – The Commissioner of Income-tax (Appeals)-31, A.R.A. Centre, E-2, Jhandewalan Extn, New Delhi – Sub: M/s ABC Ltd - A.Y – Additional evidence u/r 46A of the Income-tax Rules, 1962 May it please your honour, I. The appellant humbly prays for admission of the following additional evidence in respect of Ground Nos. 4 and 5 taken before your honour:- Ground no 1 - Regarding Foreign Travel: a) Details and bills and vouchers from PB 1 to 192 b) Regarding Local Travel: c) Details and bills and vouchers from PB 193 to

24 Ground No 2- Regarding Contest expenses: Details and Bills and vouchers from PB 312 to 443 II. Assessee was prevented by sufficient cause to produce evidence called for by the AO: (i) It is respectfully prayed that during the course of assessment proceedings, the Assessing Officer had sought details of expenses relating to foreign and inland travel and contest expenses in respect of A.Y which were promptly filed. However, the copies of invoice of air tickets, stay in hotels, bills of inland travel etc could not be furnished during the course of assessment proceedings ( ii) It was explained to the Assessing Officer that the matter is more than 20 years old and therefore, it would not be possible for the company to locate records relating to travel undertaken by its employees and so also the contest expenses. However, the Assessing Officer did not consider the plea of the assessee and proceeded to make huge additions under the head ‘Traveling’ and contest expenses for want of vouchers. (iii) It is respectfully submitted that besides the matter being more than 20 years old, the management of the company has changed hands and even the offices from which the company was functioning, has changed on at least 3-4 occasions. Your honour will also appreciate that the company is not expected in law to keep records exceeding 6 previous assessment years and it would be impossible to maintain vouchers over a span of 20 years and above. (iv) However, since the Assessing Officer was not satisfied with the details of expenses and only wanted the original vouchers, the company has since deployed a number of employees to look into the various records of the company and go as far back as possible. With great efforts, the vouchers relating to travel and contest expenses have been located and are being enclosed herewith for your kind consideration. 24

25 III. The case of the appellant falls under clause (c) of Rule-46A(1) of the Income-tax Rules, 1962 whereby it can be stated that the appellant was prevented by sufficient cause from producing the evidence which the AO wanted as there was hardly any time to get the said evidence and the appellant was also not sure whether the said evidence could be made available at all or not. IV. Your honour will further appreciate that this evidence is crucial and its consideration and appraisal would render the substantial justice to the appellant. V. Reliance is placed on: a) The Hon'ble Delhi High Court’s judgment in the case of CIT v. Virgin Securities and Credits P. Ltd (2011) 332 ITR 396 (Del) wherein the Hon'ble Court held that the CIT(A) should admit the additional evidence if he finds that the same is crucial for the disposal of the appeal. It may be appreciated that the Assessing Officer rejected the claim of the expenditure on the ground that vouchers could not filed. Hence vouchers are crucial piece of evidence for rendering substantial justice. The same has been found after great efforts and it is accordingly prayed that they may be admitted. b) Reliance is also placed on the Hon'ble Delhi High Court’s judgment in the case of Chandrakant Chanu Bhai Patel 202 Taxman 262 wherein it has been held that if additional evidence is without any blemish and in order to advance the cause of justice, the same ought to be admitted. 25

26 c) It has been held that the judicial authorities must passed orders effectively and the objective is to unfold the actual controversy and apprise the correct facts so that there is no miscarriage of justice. Therefore, if the documents sought to be produced are of such a nature that they render assistance to the authorities in passing order or are required to be admitted for any other substantial cause, it would be the duty of the appellate authority to admit them. This proposition was law upheld by the Hon’ble Tribunal in the case of Abhay Kumar Shroff V/s. Income-tax Officer 63 ITD 144(Pat) where in, the Tribunal admitted additional evidence even when not even a whisper of the same was made before the first appellate authority. d) The Hon’ble Mumbai High Court in the case of Smt. Prabhavati S. Shah V/s. CIT, 231 ITR 278 held that if the assessee had been informed by the ITO in the course of the assessment proceedings that he was not inclined to accept the loans as genuine because of the non availability of the creditors, the assessee could have tried to satisfy him about the genuineness of the loan by producing other evidence. Therefore, the additional evidence sought to be filed under Rule 46 A was admissible. e) The Hon’ble Supreme Court in the case of Collector Land Katji, 167 ITR 471 (SC) have held that when technical considerations are pitted against the cause of substantial justice it is the cause of substantial justice that must prevail. In view of the aforesaid it is prayed that the aforesaid additional evidence may kindly be admitted. Thanking you, Yours faithfully XYZ 26

27 GROUNDS OF APPEAL AND BRIEF FACTS  To be specific and brief.  Can give alternative ground without prejudice.  Facts need not be very elaborate but must fill up the columns.  Should narrate that detailed submissions shall be filed at the time of hearing before Your Honours. 27

28 2.Sample index of Paper book Before The Commissioner of Income tax (A)- I, New Delhi Block Period to IT Appeal No – 123/11-12 SA Sh. ABC,vs.ACIT, 560, Katra Ishwar Bhawan, Central Circle – 25, Khari Baoli, Delhi.New Delhi. PAPER BOOK 28 S.No.ParticularsPage No. 1.Addition on account of Unaccounted personal expenses incurred by the assessee as per the Personal diary seized during the course of search: (a) Return of Income of Smt. Harsha Khanna and husband Sh. Pradeep Khanna for the block assessment years. 1-14

29 S.NoParticularsPage no 2.Copy of Order Sheet Notice u/s 158BC dated Copy of notice u/s section 142(1) dated Reply to notice dated furnished to the A.O Analysis of cash flow26 29 This is to certify that the above documents and material have already been furnished to the authorities. Authorized Representative

30 Paper Book  Paper book containing pleadings and evidences placed before assessing officer, be filed. describe every document well in the paperbook, number serially, advert attention of CIT(A) to the relevant replies and documents, if paperbook large bind it spirally, attach all relevant documents filed before the AO on the issue along with written submissions on the subject.  Past history-an important evidence-but to be used carefully at this stage  Details given in past assessment can be made part of paper book 30

31 3. Written submissions –Start with “May it please Your Honour” or “Dear Sir” –Submissions to be ground wise –Must state briefly what AO states –Counter facts point wise –Give case law and explain how it applies to your issue, –Take copies of judgments reported in ITR, CTR, TTJ, SOT and others, give reference of PB folio. –Answer to query only if very sure on facts or law. 31

32 Sample written submissions Dated – The Commissioner of Income-tax (Appeal)-II, Laxmi Nagar Delhi – Sub: Appeal in the case of Mr. XYZ- A.Y Filing of submissions – Regarding May it Please Your Honour, The appeal for A.Y has been filed against the assessment orders dated passed by ACIT, Central Circle-1 New Delhi u/s, 143(3) of the Income-tax Act, Details of income returned and assessed are given below:- 32 A.Y.Income returned (Rs.) Income assessed (Rs.) ,66,98041,91,92,951

33 2. The details of additions made for A.Y are given below:- ( STATEMENT OF GROUND IN DISPUTE/AMOUNTS AND FACTS) 33 ParticularsAmount in Rs. Share capital2,18,74,410 Investment in ABCPvt.Ltd 16,98,38,020 Unexplained Cash 30,95,190 Investment in Farms from Overseas Bank A/C 28,47,533 Unexplained Jewellery 1,20,73,114

34 3. Regarding addition of Rs. 2,18,74,410 as unexplained share capital Brief Facts: (i) The Assessing Officer sought evidence to prove the identity and creditworthiness of the persons related with the increase in the share capital, along with the genuineness of the transaction. The appellant gave complete details of shareholders to whom the shares were allotted giving interalia, their address, the number of shares allotted and the amount paid by them. The assessee also furnished the confirmation from the share holders, FIPB approval authorizing the company to raise share capital, copies of certificate of incorporation of foreign companies, copy of FIRC, copy of Form No. 2 filed with ROC etc. (ii) The Assessing Officer has merely stated that the details furnished by the assessee do not prove the creditworthiness of the persons from whom the share capital has been raised and hence the addition of Rs. 2,18,74,410 as unexplained share capital has been made.(ALLEGATION OF AO) 4. Submissions: (i) During the course of assessment proceedings, the appellant gave the following details/evidences to establish the genuineness of the share capital:-   Details of share holders along with the number of shares applied for and allotted (p.28 & 33/PB)   Copy of ledger account of share capital (p. 23/PB)   Comprehensive confirmation of Remittance (p /PB) -This is a confirmation by Admin Management Inc, one of the directors of M/s XYZ Holdings Ltd who have confirmed having remitted share capital US$ /- to the appellant company towards subscription for equity shares to be issued in the manner directed by the Foreign Investment Promotion Board of India. 34

35   FIPB approval dated and amendments - (p.40-45)   share capital has been received as per the approval received by the Government of India, the Department of Economic Affairs, FIPB.   Foreign Collaboration approval - Request for increase in paid up capital of Rs. 5 crores (p. 46/PB)   Memorandum and Article of Association of M/s XYZ Co. Ltd. duly notarized by the Dy. Governor of British Virgin Islands (p /PB) - This clearly establishes the existence of foreign share holders as a company registered in British Virgin Islands   Copy of the Certificate of Incorporation (p /PB)   Certificate of Foreign Inward Remittance (p /PB) Your honour will appreciate that in view of the documents described above, the genuineness of the share capital so introduced stands duly established. (ii) The following Circular and case laws cited herein would also show that the appellant company has gone far beyond the normal burden of proof required to be discharged for establishing the bonafide of the share capital. In fact, nothing more can possibly be filed for establishing the share capital.   In terms of CBDT Circular No. 05, dated , “Money brought into India by non-residents for investment or other purposes is not liable to Indian income tax. The question of assessment to tax arises only when there is no evidence to show that the amount, in question, in fact represents such remittance” 35

36   The Delhi Bench of the Tribunal in the case of DCIT v. Finlay Corporation Ltd (2004) 84 TTJ (Del) 788 has held as follows:- “As regards the question whether there is any conflict between provisions of section 5(2) and provisions of s.68 or s. 69, it is settled legal position that burden is on the Revenue to prove that income of an assessee falls within the net of taxation. Once it is so proved, then the burden is on the assessee to prove that such income is exempt from taxation.   The above findings of the Tribunal have been followed in the case of Saraswati Holdings Corporation Inv. V. DDIT (2007) 111 TTJ 334 (Del) wherein it was held that money brought in India by the assessee non- resident through banking channels for investment in shares could not be brought to tax as unexplained cash credit u/s 68 of the Income-tax Act, 1961 (p. 31/PB2).   The Tribunal followed the observation made by the Hon'ble Supreme Court in the case of UOI v. Azaadi Bachao Andolan (2005) 263 ITR 706 (SC).   The source of the source is not required to be established. In the case of TOLA RAM DAGA 59 ITR 632 it was held as under: I. If third party confirms her deposit then assessee can’t be compelled to establish the source of her deposit. II. Section 34 of the evidence act says that entries in books of account to be true. III. Even if the deposit is from wife assessee not to have private knowledge of the source unless department establishes that he had knowledge. 36

37   In the case of ORIENT TRADING CO 49 ITR 723 BOM it was held that in a case where the entry stands in the name of the third-party, the assessee satisfies the income tax officer as to the identity of the third-party and also supplies such other evidence which will primafacie show that the entity is not fictitious, the initial burden which lies on him can be said to have been discharged. It will not thereafter be for the assessee to explain further how or in what circumstances the third-party obtained money in whole or why he came to make a deposit of the same with the assessee.   RAVALI TRADING 220 CTR 622 RAJ. It was held that once the existence of the creditors is proved and persons own the credits which are found in the books of the assessee, the assessees onus stands discharged and the latter is not further required to prove the source from which the creditors would have acquired the money deposited with him and, therefore, the addition under section 68 cannot be sustained in the absence of anything to establish that the sources of the creditors deposit flew from the assessee itself.   Similar ratio was laid down in the case of LATE MANGILAL AGARWAL 300 ITR 372 (RAJ). S HASTIMAL 49 ITR 273 (MAD), NABADWIP CHANDRA ROY 44 ITR 591 (ASSAM), S N GANGULY 24 ITR 16 (PAT).   In the case of Nemi Chand Kothari – 264 ITR 254(Gau)-In this case the creditors didn’t show the creditworthiness of the sub creditors. It was held that the addition was not justified in hands of assessee as once the identity & fact that cheque was received is proved – onus shifts on the AO. 37

38   The Delhi Bench of the Tribunal in the case of DCIT v. Finlay Corporation Ltd (2004) 84 TTJ (Del) 788 has held as follows:- “As regards the question whether there is any conflict between provisions of section 5(2) and provisions of s.68 or s. 69, it is settled legal position that burden is on the Revenue to prove that income of an assessee falls within the net of taxation. Once it is so proved, then the burden is on the assessee to prove that such income is exempt from taxation. Section 5(2) being charging section, the burden is on the Revenue to prove that the income of the non-resident falls within the ambit of such section. On the other hand, the legislature has case the onus on the assessee to explain the source of money falling within the ambit of s. 68 or s. 69. (iii) Treating the share capital as income is without any legal or factual basis and is merely the figment of the imagination of the Ld. Assessing Officer. Huge tax liability has been foisted upon the appellant in respect of some entries in the said two documents and the learned assessing officer has completely ignored the fundamental and basic principles of jurisprudence and natural justice. (MUST WRITE ABOUT OPPORTUNITY, NATURAL JUSTICE, ONUS, CONFIRMATION) In view of the aforesaid and since the appellant company’s case is fully covered by the case laws as discussed above, the Ld. CIT(A) is requested to delete the addition. Thanking you, Yours faithfully, XYZ 38

39 Maintain diary of case laws 39

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