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Commissioner Of Income-Tax v. Real Time Marketing P. Ltd.

Delhi High Court

Apr 7, 2008

Judgment

Subsequent
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Factual and Procedural Background

The Revenue filed an appeal under section 260A of the Income-tax Act, 1961, challenging the order dated September 15, 2006, passed by the Income-tax Appellate Tribunal (Tribunal), Delhi Bench “A”, concerning the assessment year 2001-02. The Tribunal had held that there was no material linking the assessee with a cash deposit of Rs. 22,97,000 in the bank account of M/s. Fair Business Security and Leasing Pvt. Ltd. (FBSL).

The assessee, a private limited company, had taken an unsecured loan of Rs. 25 lakhs from M/s. Aishwaray Capital Lease Finance Pvt. Ltd. (ACL). The Assessing Officer (AO) requested various documents from the assessee and examined bank statements, revealing a sequence of fund transfers involving three companies—FBSL, M/s. Breeze Trade Links Pvt. Ltd. (BTL), and ACL—all sharing the same address. The AO suspected the transactions were sham and treated the Rs. 25 lakhs as unexplained cash credit under section 68 of the Act, making an addition to the taxable income of the assessee.

On appeal, the Commissioner of Income-tax (Appeals) (CIT (A)) found that the assessee had discharged its burden of proving the genuineness of the transactions, and the addition was not justified. The CIT (A) noted that summons were not issued to the involved companies before concluding the transactions were from the assessee's own money. The Revenue then appealed to the Tribunal, which dismissed the appeal, upholding the CIT (A)'s findings. The present appeal by the Revenue challenges the Tribunal's order.

Legal Issues Presented

Whether the cash deposit of Rs. 22,97,000 in the bank account of M/s. FBSL can be linked to the assessee, thereby justifying an addition under section 68 of the Income-tax Act as unexplained cash credit.
Whether the series of fund transfers through multiple companies constitutes a sham transaction designed to evade tax.
Whether the assessee discharged the burden of proving the identity, capacity, and genuineness of the loan transaction.
Whether the Revenue's appeal is maintainable in view of the concurrent findings of fact by the CIT (A) and the Tribunal.

Arguments of the Parties

Revenue's Arguments

The assessee used a circular route involving multiple companies to receive the loan amount in its account.
This circular routing was a device to evade tax, making the loan taxable under section 68 of the Income-tax Act.

Assessee's Arguments

The cash deposited by M/s. FBSL was not the assessee's money but belonged to M/s. FBSL as per its books.
The assessee submitted confirmation from M/s. ACL and other supporting documents to prove the genuineness of the loan transaction.
The assessee discharged its burden of proving the identity, capacity, and genuineness of the transaction.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court noted the concurrent findings of fact by the CIT (A) and the Tribunal that the assessee had filed confirmation from M/s. ACL, which was assessed to tax, and the source of ACL’s funds was explained as transfers from M/s. BTL. The Assessing Officer failed to produce any material linking the assessee with the cash deposit in FBSL's account. The court emphasized that the assessee discharged its burden of proving the identity, capacity, and genuineness of the transactions. Since there was no material to show the cash credit was unexplained, the addition under section 68 was unjustified. The court found no infirmity or perversity in the Tribunal’s order and held that no substantial question of law arose.

Holding and Implications

The appeal filed by the Revenue is dismissed.

The direct effect of this decision is that the addition of Rs. 25 lakhs as unexplained cash credit under section 68 of the Income-tax Act is not sustained against the assessee for the assessment year 2001-02. No new legal precedent was established as the court affirmed the concurrent factual findings of the lower authorities. The Revenue’s contention of tax evasion through circular transactions was not accepted due to lack of material linking the assessee to the initial cash deposit.

Show all summary ...

V.B Gupta, J.:— The Revenue has filed the present appeal under section 260A of the Income-tax Act, 1961 (for short as “the Act”), against the order dated September 15, 2006, passed by the Income-tax Appellate Tribunal (hereinafter referred as “the Tribunal”), Delhi Bench “A” in I.T.A No. 2574 (Del)/2004 relevant for the assessment year 2001-02. The Tribunal in its order held that there is absolutely no material to link the assessee with the sum of Rs. 22,97,000 deposited in cash in the bank account of M/s. FBSL.

2. The facts of this case are that the assessee is a private limited company. During the previous year, it had taken an unsecured loan of Rs. 25 lakhs from M/s. Aishwaray Capital Lease Finance Pvt. Ltd. (hereinafter referred to as ACL). The Assessing Officer asked the assessee to file a copy of income-tax return along with the audited profit and loss account and the balance-sheet with annexures and copy of bank statement for the period ending March 31, 2001, of M/s. ACL. The assessee furnished the same accordingly.

3. On a perusal of the bank statement of M/s. ACL, the Assessing Officer noticed that the funds were transferred through internal transfer on March 28, 2001, to M/s. ACL and then in the same manner in the bank account of the assessee-company. The Assessing Officer called for information from the bank under section 133(6) of the Act to locate the true nature of these internal transfer transactions and the exact source of funds. It was revealed on the information furnished by the bank:

(a) that on March 28, 2001, cash of Rs. 22,97,000 was deposited in account No. 4142 pertaining to M/s. Fair Business Security and Leasing Pvt. Ltd. (hereinafter referred to as FBSL)

(b) from this account No. 4142 a sum of Rs. 25 lakhs was transferred to account No. 4016, which stood in the name of M/s. Breeze Trade Links Pvt. Ltd. (hereinafter referred to as BTL) on the same day

(d) on the same day, i.e, March 28, 2001, Rs. 25 lakhs were transferred from account No. 4144 from M/s. ACL to the assessee.

4. The Assessing Officer also noticed that all the three companies referred to above had the same address, i.e, B-258, Naraina Industrial Area, Phase-I, New Delhi. Further, no interest was charged by any of these transferees. The Assessing Officer was thus of the view that the entire transaction was a sham transaction and asked the assessee to show cause as to why cash deposit of Rs. 22,97,000 made into the account of M/s. FBSL be not added as the taxable income of the assessee for the year under consideration. The assessee submitted its reply and filed confirmation from M/s. ACL. The assessee also submitted that the cash deposited by M/s. FBSL was not its money and that it was from the books of the said company.

5. The Assessing Officer, however, held that it was the assessee's money of Rs. 22,97,000 which was deposited in cash into the account of M/s. FBSL and the same was routed through different accounts and received as unsecured loan by the assessee-company and thus made an addition of Rs. 25 lakhs as unexplained cash credit under section 68 of the Act.

6. On appeal filed by the assessee, the Commissioner of Income-tax (Appeals) (for short as “the CIT (A)”) held that the assessee had discharged its burden of proving the identity, capacity and genuineness of the transaction and in the circumstances the addition made by the Assessing Officer was not justified. It was also observed by the Commissioner of Income-tax (Appeals) that the Assessing Officer had not chosen to issue summons to M/s. FBSL, M/s. ACL or M/s. BTL before coming to the conclusion that all the transactions were from and out of the money provided by the assessee.

7. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Tribunal and, vide the impugned order the Tribunal dismissed the appeal of the Revenue.

8. It has been contended by learned counsel for the Revenue that the assessee has used circular route to receive the loan in its account and the same is merely a device being used to evade tax and as such, loan is taxable under section 68 of the Act.

9. There is a finding of fact given by the two authorities, namely, the Commissioner of Income-tax (Appeals) and the Tribunal to the effect that:

“The confirmation of M/s. ACL has been filed by the assessee. The said company was assessed to tax. The source of ACL had been explained as out of transfer of funds from the accounts of M/s. BTL. Thus, the assessee discharged its burden of proving identity, capacity and genuineness of the transaction. The Assessing Officer has not brought any material to show that the funds to ACL were provided by the assessee. Under the circumstances, it cannot be said that the cash credit in question has remained unexplained. There is absolutely no material to link the assessee with the sum of Rs. 22,97,000 deposited in cash in the bank account of M/s. FBSL.”

10. In view of the concurrent findings of the fact given by the two authorities that there is no material to link the assessee with a sum of Rs. 22,97,000 deposited in cash in the bank account of M/s. FBSL, as such, no case is made out for making addition under section 68 of the Act, since there was no material with the Assessing Officer to come to the conclusion regarding any genuineness or fictitious identity of the entries or non-capacity of the lender.

11. Under these circumstances, we do not find any infirmity or perversity in the order passed by the Tribunal and, in our opinion, no substantial question of law arises in this case. With the result, the present appeal is not maintainable and the same is hereby dismissed.