Assessment Proceedings & Appeals under the

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“Assessment Proceedings & Appeals
under the Income Tax Act, 1961”
Ajay Wadhwa
Chartered Accountant
A-445, Ground floor, Defence Colony,
New Delhi - 110024
# 9818653331
[email protected]
1
ASSESSMENT
PROCEEDINGS
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1. First step - Examine Service of notice
u/s 143(2)
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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)
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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
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First step - Examine Service of notice
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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)
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Procedural Compliances
1.
2.
3.
4.
5.
Notice of scrutiny u/s 143(2) – Examine
carefully. (as discussed in the first and
second slide)
Make a careful and candid disclosure of
facts on first hearing.
Power of Attorney filing.
Replicate order sheet entries and parallel file
for record.
Do not resort to case laws except those of
the Hon’ble Supreme Court
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6. While filing the reply(s) during assessment
proceedings:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
Filing details and requesting for limiting the scope of information.
Start by mentioning about earlier correspondence.
Mention the time of hearing and proceedings of the earlier hearing
in submissions
Preferably number and index the documents filed
Address each limb of the query thoroughly.
Mention “carrying books of account.”
Get reasons for scrutiny.
Be thorough with circulars on conduct of AO’s during scrutiny.
Be communicative in your submissions.
Keep copies of documents filed
Inspection of file
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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
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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)
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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
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Facts must be stated and must not be argumentative.
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Need not enclose documents in support of affidavit
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Taken to be a statement by assessee’s witness
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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)
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The affidavit/confirmation cannot be rejected merely on
the ground that the department is unable to verify its
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correctness
9. Recording of statement and evidence –
Summons
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Evidence to be confronted 239 ITR 859 (P&H) Arjun Dass
Surinder Kumar & Co. -
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Third party statement-at back of assessee- no cross
examination -no adverse inference - Alok Aggarwal [2000] 67
TTJ 109 (Del ITAT)
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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
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Re-examination
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Order of examination
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Improper questions
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Assessment set aside – not tested by cross examination
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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)
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Statement recorded without corroborative evidence could not
fasten any liability-Shree Ganesh Trading Co. V
Commissioner of Income-tax (Jharkhand).
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As per circular of CBDT No. 286/2/03- IT (Inv) dt. 10/3/03- no
Confessional statement to be elicited.
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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.
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Other Provisions of CPC applicable, in case, the officers
invoke section 131.
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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)
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Capital/Revenue
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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)
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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)
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Order void if natural justice principles not followed , order
passed in undue haste without proper hearing – M S
Jewellery 122 CTR 155 (Ker),
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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)
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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).
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Situations of violation of principles of
natural justice
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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 passed14.
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 78.
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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
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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).
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Each entry must be separately explained by assessee
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Assessee’s burden is confined to prove creditworthiness
of creditor with reference to transaction between
assessee and creditor.
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13. BOARD CIRCULARS
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No disallowance of claim contrary to judicial decision.
Instruction No 1814 dt 4-4-89 also 74 ITD 314 (Ahd).
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Rules for inspection of documents. Circular No 17(XL36) dt 28-6-65.
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Department not to take advantage of ignorance of
assessee. Allow deduction not claimed but allowable.
Circular No 14 (XL-35) dt 11-4-55.
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Estimation of income – depreciation to be separately
allowed. Circular No 29D(XIX)-14 dt 31-8-85.
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Circular not followed – scrutiny assessment quashed.
Best Plastics 295 ITR 256 (Del)
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14. Cash Credits Verification
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Confirmation should establish identity, genuineness and
creditworthiness of the lender/creditor.
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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),
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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.)
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CIT v. Orissa Corporation (P) Ltd (SC) – Revenue to
examine source of income & credit worthiness of
creditors 159 ITR 78
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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.)
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APPEALS
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1. Admission of additional evidence
– Rule 46A
Situations under which additional evidence
maybe admitted by the CIT (A):
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AO refuses to admit
Appellant prevented by sufficient cause to produce
evidence called for by AO
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Appellant prevented by sufficient cause any
evidence relevant to ground of appeal
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where the AO has made the order appealed against
without giving sufficient opportunity
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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
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Draft Application under Rule 46A
Date – 05.05.2014
The Commissioner of Income-tax (Appeals)-31,
A.R.A. Centre,
E-2, Jhandewalan Extn,
New Delhi – 110055
Sub: M/s ABC Ltd - A.Y. 2012-13 – 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 311
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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. 1998-99 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.
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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.
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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
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GROUNDS OF APPEAL AND BRIEF
FACTS
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To be specific and brief.
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Can give alternative ground without prejudice.
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Facts need not be very elaborate but must fill up the
columns.
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Should narrate that detailed submissions shall be filed at
the time of hearing before Your Honours.
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2.Sample index of Paper book
Before The Commissioner of Income tax (A)- I, New Delhi
Block Period 1.4.96 to 17.10.2002
IT Appeal No – 123/11-12 SA
Sh. ABC,
vs.
560, Katra Ishwar Bhawan,
Khari Baoli, Delhi.
ACIT,
Central Circle – 25,
New Delhi.
PAPER BOOK
S.No.
Particulars
Page No.
1.
Addition on account of Unaccounted 1-14
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.
28
S.No
Particulars
2.
Copy of Order Sheet
Page no
15-17
3.
Notice u/s 158BC dated 20.05.2003
18
4.
Copy of notice u/s section 142(1) dated 07.10.2004 19-21
5.
Reply to notice dated 13.10.2004 furnished to the
A.O
22-25
6.
Analysis of cash flow
26
This is to certify that the above documents and material have already been
furnished to the authorities.
Authorized Representative
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Paper Book
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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.
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Past history-an important evidence-but to be used
carefully at this stage
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Details given in past assessment can be made part
of paper book
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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
Sample written submissions
Dated – 05.05.2014
The Commissioner of Income-tax (Appeal)-II,
Laxmi Nagar
Delhi – 110092
Sub: Appeal in the case of Mr. XYZ- A.Y. 2007-08 - Filing of submissions –
Regarding
May it Please Your Honour,
The appeal for A.Y. 2007-08 has been filed against the assessment orders
dated 30.12.2009 passed by ACIT, Central Circle-1 New Delhi u/s , 143(3) of
the Income-tax Act, 1961. Details of income returned and assessed are given
below:-
A.Y.
Income
Income
returned (Rs.) assessed
(Rs.)
2007-08
8,66,980
41,91,92,951
32
2. The details of additions made for A.Y. 2007-08 are given below:(STATEMENT OF GROUND IN DISPUTE/AMOUNTS AND FACTS)
Particulars
Share capital
Investment in
ABCPvt.Ltd
Unexplained Cash
Investment in Farms
from Overseas Bank
A/C
Unexplained
Jewellery
Amount in Rs.
2,18,74,410
16,98,38,020
30,95,190
28,47,533
1,20,73,114
33
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. 51-52/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$ 550000/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

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FIPB approval dated 16.09.1998 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. 85-102/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. 35-39/PB)
Certificate of Foreign Inward Remittance (p. 48-50/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 20-02-1969,
“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

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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 nonresident 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.
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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

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
Maintain diary of case laws
39
40
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