Income Tax Appellate Tribunal – Mumbai
Dcit – 14(2)(2), , vs M/S Mishal Construction P. Ltd, … on 23 December, 2021 ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
Page 1 of 11
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ‘B’ BENCH, MUMBAI
[Coram: Pramod Kumar (Vice President) and
Amarjit Singh (Judicial Member)]
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
Deputy Commissioner of Income Tax-14(2)(2)
Mumbai ……………………….Appellant
Vs
M/s Mishal Construction Pvt. Ltd., ……………………Respondent
402, Vikas Commercial Centre, Dr. C.G. Road,
Near Basan Cinema, Chembur, Mumbai 400 0074
[PAN No. AAFCM6325A]
Appearances by
Himanshu Sharma for the appellant
None for the respondent
Date of concluding the hearing : December 13, 2021
Date of pronouncement of order : December 23, 2021
O R D E R
Per Pramod Kumar, VP:
1. These five appeals pertains to the same assessee, arises out of materially similarly set of
facts and heard together. As the matter of convenience therefore all the five appeals are being
disposed of by way of this common order.
2. We first take up the appeal for the assessment year 2010-11 which is lead appeal.
3. By way of this appeal the Assessing Officer has challenged correctness of the order dated
28th February 2019, passed by the learned Commissioner of Income Tax in the matter of
assessment u/s. 143(3) r.w.s. 147 of the Income Tax Act 1961, for the assessment year 2010-
11on the following grounds:
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in
deleting the addition of Rs. 3,05,00,000/ – made by the AO u/s 68 in respect of unsubstantiated
unsecured loans.”
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
Page 2 of 11
2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in
holding that the assessee had discharged the primary onus cast upon it, without addressing the
significant improbabilities identified by the AO particularly vide Para 4.4 and 4.9 of his order.”
3. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in
failing to appreciate that documents furnished by the assessee have to be seen in the light of
antecedent circumstances before concluding in respect of genuineness of a transaction.
4. “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in
deleting the disallowance of interest of Rs. 17,80,807/-claimed to have been paid to the lenders
of the above loans which remained unsubstantiated.”
5. “The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid
grounds of appeal at any time before or at the time of hearing of appeal.”
6. “The appellant prays that the order of CIT(A) on the above ground be set-aside and
that of the assessing officer be restored.”
4. Briefly stated the material facts are like this. It is a case of reopened assessment
proceedings during the course of resultant assessment proceedings. The Assessing Officer noted
that during the relevant previous year the assessee have obtained unsecured loans from various
parties aggregating to Rs. 4,45,000,00/- and paid interest of Rs. 25,00,817/- thereon. The details
of these loans are as follows:-
4.1 On verification of balance sheet filed by the assessee during the course of assessment
proceedings, it is seen that during the current year it has obtained unsecured loan from various
person. The assessee company has obtained loans (from concerns other than the directors and
their relatives) during the F.Y 2009-10 relevant to the assessment year 2010-11 following
amounts as loans:
Sr. No Name of the concern Total amount Total interest accrued
received as unsecured on the loan during
loan during A.Y AY 2010-11
2010-11
1. BloomdaleFinvest Pvt. Ltd. 45,00,000 2,54,022
2. Divyadhwani Investment Pvt. Ltd. 20,00,000 66,871
3. Jai Hind Mercantile Pvt. Ltd. 65,00,000 2,65,561
4. Lalita Exports Pvt. Ltd. 60,00,000 4,60,406
5. Kuvam International Pvt Ltd. 1,40,00,000 7,20,000
6. Plumetti Exports Pvt. Ltd. 95,00,000 6,17,376
7. Tinal Pharmaceuticals Pvt. Ltd. 20,00,000 1,61,581
Total 4,45,00,000 1,61,581
5. When the matter was probed further and the assessee was required to furnish
documentary evidences to prove identity creditworthiness and financial capacity of the investors.
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
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The assessee declined to comply with the requisition on the ground that the time given to the
assessee was too short. The assessee was further given some time the complied with the
requisition and in the meantime notices u/s. 133 sub section 6 were issued to the persons from
whom the assessee had borrowed the above funds. In response of these notices one person filed
the details by way of bank statements and ITR’s etc. The Assessing Officer noticed that file of
the companies from which unsecured loans are taken are at the same address and even the
directors of the same. It was further noticed that there have been corresponding deposits of
similar amount just immediately prior to the money is being received through these companies.
While admittedly the details the money were received through banking channels. The Assessing
Officer did question bonafides and genuineness of these transactions. It was this backdrop that
the Assessing Officer proceeded to made an addition of the unexplained cash credits in question
aggregating to Rs. 3,05,00,000/- and disallowed interest payment of such unsecured loan
aggregating to Rs. 17,80,807/-. While doing so the Assessing Officer observed as follows:-
4.4 However, on verification of Copies of returns of income and copies of bank statements
of persons from whom loans are borrowed, it was seen that the parties were filing their returns
of income with total income being much less than the amount of money invested given as loan
in many cases. Further, no profit and loss account or balance sheet or capital account of these
parties was filed by the assessee company despite being asked specifically. In the absence of
any such details filed, the creditworthiness of the parties to lend such huge sums of money
cannot be ascertained. In fact perusal of extract of the bank statement of these parties shows
that these parties do not have any regular source of income. Funds of exactly equal amounts
are credited to bank accounts by way of clearing immediately prior to alleged investment and
these funds are subsequently advanced as share application money. Also, observed was that
funds remain in these loans parties accounts for a very short period of a few days and in some
cases the funds are transferred on the same day on which the amount was deposited. For
example, on verification of the details field it is seen that M/s. Plumetti Exports Pvt Ltd has
filed its return of income for A.Y. 2010-11 declaring total income at Rs. 9,96,502/- and on
further verification of bank statement, it is seen that there is a deport of Rs. 27.25 lacs on
02.05.2009 and on the same day the amount was transferred to the assessee company, which is
not in line with the income declared by it in the return of income. The same is the case for
other payments of the above party to the assessee company and in the case of other party as
well. Merely routing transactions through banking channel without justifying the nature of
these deposits with the regular sources of income would not lead to conclusion that the share
applicant has creditworthiness.
4.5 Therefore in view of these specific observations and without prejudice to the fact that
the assessee company has not been able to discharge its onus to establish the creditworthiness,
genuineness as well as identity of the alleged share applicant with the credible documentary
evidence.
4.6 In view of above adverse findings and observations, was asked to show cause as to why
the amount received from the above parties should not be treated as unexplained cash credit
u/s 68 of the Act and added to its total income to personally produce the alleged the persons
from whom loans borrowed before the undersigned for verification as the onus lies upon it to
prove the genuineness of the transactions with the identity as well as creditworthiness of the
persons from whom loans borrowed.
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
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4.7 In response to the above show cause, the assessee company has not filed any further
details or explanations till date. The assessee company has also not produced the persons for
verification at this office despite being directed to do so. Further, no justification has been
provided in response to show cause issued as to why alleged loans borrowed should not be
treated as unexplained cash credit u/s 68 of the Act.
4.8 It is observed at Para 4.4 above from the partial details filed by the assessee company
with regard to these parties that the creditworthiness of these parties have not been established.
4.9 It is quite strange to note here that letter could be filed in response to the notice u/s
133(6) but the assessee could not attend the office personally and that also in spite of the
Assessing Officer asked to do so, only one entity i.e. Kuvam International Pvt. Ltd. appeared
and submitted the details called for. The partial details allegedly filed by these parties also do
not contain any seal of those companies. Further, the identity as well as genuineness of the
signatory claiming to be authorized signatory of these alleged entities is not known or verifiable
from these papers. Further, the details filed also do not contain any documentary evidence to
establish creditworthiness of those parties. These submissions give in response to notice u/s
133(6) have been allegedly stage managed by the assessee company to show mechanical &
partial compliance to the requirements of section 68 to the extent of filing of some papers only
to allegedly demonstrate that the alleged share applicants are actually existent but these
documents also do not establish the creditworthiness, identity of these parties or genuineness of
the alleged transactions. The assessee company has not been producing these parties before the
undersigned only for the simple reason that the parties are merely accommodation entry
providers and it does not have any credible sources to invest such huge sums of money in the
assessee company. Therefore, the assessee company does not want to subject them to
examination on oath by the undersigned to unearth the true state of their affairs.
4.10 The onus lies on the assessee company to establish the identity, creditworthiness of the
parties and genuineness of the transaction with necessary and sufficient documentary
evidence. In absence of the same, it clearly suggests that the assessee company is deliberately
avoiding furnishing of requisite details by not complying fully with the terms of the statutory
notices issued, specific query raised vide order sheet notings and show cause issued to it. It is
settled law that mere furnishing of particulars is not enough. Mere payment by account payee
cheque is not sacrosanct nor can it make a non-genuine transaction genuine. Documentary
façade created by the assessee company cannot be accepted as being genuine in view of the
surrounding facts and circumstances of the case discussed in detail above.
4.11 Sections 68 of Income-tax Act, 1961 reads as under:-
“Where any sum is found credited in the books of an assessee maintained for any previous
year, and the assessee offers no explanation about the nature and source thereof or the
explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum
so credited may be charged to income tax as the income of the assessee of that previous year.”
4.12 Thus, the conditions for applicability of section 68 are (i) Existence of books of
account; (ii) A credit of sum in the books of account of an assessee; and (iii) Absence of a
satisfactory explanation or no explanation by the assessee about the nature and source of the
sum credited. It needs no elaboration that through a catena of decisions the Courts have laid
down the following three fundamental tests which have to be established by the assessee to
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
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discharge the burden under section 68 of the Act are i) Identity of the creditor; ii)
Creditworthiness of the creditor, and iii) Genuineness of the transaction.
4.13 The burden of proof to establish the three fundamental tests laid down by the various
decisions lies on the assessee in whose books of account a sum is found to be credited. The
principle has been firmly established by the Apex Court in various judgments, some of which
are highlighted as under: –
Supreme Court in case of CIT v. P. Mohanakala (2007] 291 ITR 278 / 161 Taxman 169
held that the expression “assessee offers no explanation” means where the assessee
offers no proper, reasonable and acceptable explanation as regards the sum found
credited in the books maintained by the assessee.
The law is well-settled that the onus of proving the source of a sum of money found to
have been received by an assessee is on him and where the nature and source of a
receipt, whether it be of money or other property, cannot be satisfactorily explained by
the assessee, it is open to the revenue to hold that it is the income of the assessee and no
further burden lies on the revenue to show that the income is from any particular
source [Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC)]
The burden to prove the genuineness of cash credit lies on the taxpayer. If the assessee
fails to prove satisfactorily the source and nature of amounts of cash received and
creditworthiness of the creditor, the AO is entitled to draw inference that the receipts
are of an assessable nature [A. Govindarajulu Mudaliar v. CIT [1958] 34 IT 807 (SC)]
4.14 As a matter of fact, Section 68 is a statutory recognition of what was previously
established by judicial decisions to the effect that where certain sums of money were claimed by
the assessee to have been borrowed from certain persons, it was for the assessee to prove by
cogent and proper evidence that there were genuine borrowings as the facts are exclusively
within the assessee’s knowledge. This has been noted in the decisions of [Sikri& Co. P. Ltd V.
CIT 106 IT 682,688; CIT Vs. KulwantKaur 121 IT 914; CIT Vs. Sahibganj Electric Cables P
Ltd, 115 IT 408,414].
4.15 In Bharti P. Ltd. Vs. CIT -111 IT 951; CIT vs. W J Walker & Co 117 IT 690; CIT Vs.
United Commercial Co. 187 IT 596; the Hon’ble Calcutta High Court has held that mere filing
of confirmatory letters does not discharge the onus that lies on the assessee.
4.16 In CIT Vs. Precision Finance Pvt. Ltd. 208 IT 465; Nizam Wool Agency Vs. CIT 193 ITR
318; the Hon’ble Courts have held that mere furnishing of particulars is not enough. Mere
payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction
genuine.
4.17 In SumatiDayal V. CIT ((1995) 214 IT 801,806, 808-809 (SC)], the Apex Court has
observed that – apparent must be considered real until it is shown that there are reasons to
disbelieve that the apparent is not the real and that the taxing authorities are entitled to look
into the surrounding circumstances to find out the reality and matter has to be considered by
applying the test of human probabilities.
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
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4.18 DCIT vs. Smt. Phoolwati Devi (2009) 314 ITR AT1 (Delhi) wherein the Hon’ble ITAT,
Delhi Bench held that “despite the documentation supporting the claim of the assessee
superficially, the evidence could not be accepted in view of the surrounding circumstances and
human probabilities. There were certain features of the case which belie the documentary
evidence”
4.19 Kachwala Gems vs JCIT (2006) 206 CTR (SC) 585, 2858 ITR 10 (SC), wherein the
Hon’ble Apex Court held that payment by account payee cheque is not sufficient to establish
the genuineness of transactions.
4.20 CIT vs Prashant (P) (1994) 121 CTR (Cal) 20, wherein the Calcutta High Court has
held that even payment by account payee cheque is not sacrosanct and it would not make an
otherwise non-genuine transaction genuine.
4.21 CIT Vs Durga Prasad More 82 ITR.540(SC) wherein it is held by the Apex Court that
where a party relies on self-serving recitals in a document, it is for that party to establish the
truth of these recitals. It was further held by the Apex Court in this case that the tax authorities
are entitled to look into the surrounding circumstances to find out the reality of such recitals.
The Hon’ble Apex Court has specifically observed as under:
“Science has not yet invented any instrument to test the reliability of the evidence placed before
a Court or Tribunal. Therefore, the Courts and Tribunals are applying the test of human
probabilities. Human minds may differ as to the reliability of a piece of evidence.”
4.22 Juggilal Kamlapat Vs CIT 73 IT 702(SC), wherein it was held that the Assessing
Officer could go beyond the legal form and find out substance having regard to the economic
realities behind the legal facade.
4.23 It is quite clear from the above discussion that in the instant case, the assessee
company has failed to discharge its burden of establishing the identity and creditworthiness of
the alleged parties & genuineness of the transaction of funds.
4.24 In view of above discussion, it is held that amount of Rs.3,05,00,000 /- is treated as
unexplained cash credit within the meaning of section 68 of the Act and added to the total
income of the assessee company. Penalty proceedings u/s 271(1)(c) of the Act are separately
initiated for furnishing inaccurate particulars of income and concealment of income.
4.25 Since the assessee have not proved the genuineness of transaction and creditworthiness
of the loan creditors. However, in view of the above specific observations, the interest paid to
these parties and debited to the P & L account is disallowed and added back to the total income
of the assessee.
4.26 In view of above discussion, the total unsecured loans received by the assessee
amounting to Rs. 3,05,00,000 /- is added back to the total income of the assessee. Further total
interest debited to the P & L account amounting to Rs.17,80,807 /- is disallowed and added
back to the total income of the assessee company. Penalty proceedings u/s 271(1) (c) of the Act
are separately initiated for furnishing inaccurate particulars of income and concealment of
income.
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Assessment years: 2010-11 to 2014-15
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6. Aggrieved assessee carried the matter in appeal before the learned CIT(A). Learned
CIT(A) referred to several judicial precedents and taking note of the fact that the amounts were
received through banking channels and were supported by confirmation of account deleted the
above addition and disallowance. While doing so learned CIT(A) observed as follows:-
Thus, respectfully following the judicial decision of Hon’ble Apex Court and Hon’ble High
Courts and Hon’ble ITAT and considering the fact that entire loans have been received though
banking channel and supported with confirmation of account, bank statement, I.T. ack.
Receipts and also considering the fact that the Appellant has repaid the loan amount, which
support the argument of genuineness of the transactions, further the AO had not brought any
contrary evidence on record to disapprove the loans. Therefore, I hold that AO is not justified
in treating such loans as non-genuine and thus the addition made u/s. 68 cannot be sustained
and is hereby deleted. I direct AO to delete the addition of Rs. 3,05,00,000/-. Then this ground
of appeal is allowed.
7. The Assessing Officer is aggrieved as in appeal before us.
8. We have heard the learned Departmental Representative but none appeared for the
assessee. We also perused the material on record and duly considered facts of the case in the
light of the applicable legal position.
9. We find that in the present case the Assessing Officer has granted the impugned relief
simply of the basis that amounts are received through banking channels and the supported by the
balance confirmation and bank statement etc. which, accordingly to the learned CIT(A), by itself
prove genuineness of the transaction. Such an approach however is clearly unsustainable in law
in view of the fact that the amounts having come through banking channels and the balance
confirmation being on record cannot by itself prove or establish genuineness of the transaction
while on the aspect of the matter we may usefully refer to following observations of the
coordinate bench in the case of DCIT vs. Leena Power Tech Pvt Ltd. [2021] 130 taxmann.com
341 (Mumbai – Trib.) are as under:-
7. The fundamental question that we have to deal with is whether or not the learned CIT(A)
was justified in deleting the addition of Rs. 8,13,29,600 as unexplained credit under section 68
in the hands of the assessee, and the most critical thing to be examined in this regard is
explanation of the assessee with respect to these credits. There is no, and there cannot be any,
dispute on the fundamental legal position that the onus is on the assessee to prove ‘bonafides’
or ‘genuineness’ of the share application money credited in his books of accounts. This
approach finds support from the scheme of Section 68, which provides that where any sum is
found credited in the books of an assessee maintained for any previous year, and the assessee
offers no explanation about the nature and source thereof or the explanation offered by him is
not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to
income tax as the income of that assessee for that previous year. The burden is thus on the
assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer.
Everything thus hinges on the explanation given by the assessee and on how acceptable is the
explanation so given by the assessee. The next question is as to what is the kind of explanation
that the assessee is expected to give. As noted by Hon’ble Delhi High Court, in the context of
issuance of share capital and in the case of CIT v. Youth Construction (P.) Ltd. [2014] 44
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Assessment years: 2010-11 to 2014-15
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taxmann.com 364/[2013] 357 ITR 197, “it involves three ingredients, namely, the proof
regarding the identity of the share applicants, their creditworthiness to purchase the shares and
the genuineness of the transaction as a whole”. That is the approach adopted by Hon’ble
Courts above all along. In the case of CIT v. United Commercial & Industrial Co. (P.) Ltd.
[1991] 56 Taxman 304/187 ITR 596, Hon’ble Calcutta High Court has held that under the
scheme of Section 68 “it was necessary for the assessee to prove prima facie the identity of
creditors, the capacity of such creditors and lastly the genuineness of transactions”. Similarly,
in the case of Precision Finance (P.) Ltd. (supra), it was observed that “it is for the assessee to
prove the identity of creditors, their creditworthiness and genuineness of transactions”. It is
thus also a settled legal position that the onus of the assessee, of explaining nature and source
of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that
the transactions are done through the banking channels or even by filing the income tax
assessment particulars. The genuineness of the transaction as a whole is thus a very important
and critical factor in the examination of explanation of the assessee, as required under section
68, with respect to the share application monies received by an assessee.
8. It would thus appear that the learned counsel for the assessee is not really right in
approaching on the basis as if the onus is on the Assessing Officer to prove the alleged money
laundering racket – an onus that may perhaps be relevant only when the money laundering
racket is being prosecuted, but that is something we are not really concerned about. As far as
we are concerned, we must remain confined to the narrow issue of onus on the assessee to
prove ‘bonafides’ or ‘genuineness’ of the share application money credited in his books of
accounts, and that is the call we have to take in the light of facts before us and the ground
realities of the commercial world. As we proceed to deal with the genuineness aspect, it is also
important to bear in mind the fact that what is genuine and what is not genuine is a matter of
perception based on facts of the case vis-à-vis the ground realities. The facts of the case cannot
be considered in isolation from the ground realities. The allegation of the revenue is that the
assessee has received share application money through a complex web of shell entities and
multiple layering of the transfers from one company to another. It will, therefore, be useful to
understand as to how the shell entities, which the share applicants are alleged to be, typically
function, and then compare these characteristics with the facts of the case and in the light of
well settled legal principles. A shell entity is generally an entity without any significant trading,
manufacturing or service activity, or with high volume low margin transactions- to give it
colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell
entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of,
financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond
what is legally permissible. These entities have every semblance of a genuine business- its legal
ownership by persons in existence, statutory documentation as necessary for a legitimate
business and a documentation trail as a legitimate transaction would normally follow. The only
thing which sets it apart from a genuine business entity is lack of genuineness in its actual
operations. The operations carried out by these entities, are only to facilitate financial
maneuvering for the benefit of its clients, or, with that predominant underlying objective, to
give the colour of genuineness to these entities. These shell entities, which are routinely used to
launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the
financial world, as many other evils. Even laymen, much less Members of this specialized
Tribunal, responsible public servants like IRS officers and very well educated and very well
informed people like the learned counsel, cannot be oblivious of these ground realities.
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Assessment years: 2010-11 to 2014-15
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9. It is also important that when we examine the genuineness of the transactions entered into
by the assessee, we must also bear in mind Hon’ble Supreme Court’s observation, in the case of
CIT v. Durga Prasad More [1971] 82 ITR 540, to the effect that “Science has not yet invented
any instrument to test the reliability of the evidence placed before a court or tribunal.
Therefore, the courts and Tribunals have to judge the evidence before them by applying the test
of human probabilities”. Similarly, in a later decision in the case of Sumati Dayal v. CIT
[1995] 80 Taxman 89/214 ITR 801 (SC)], Hon’ble Supreme Court rejected the theory that it is
for alleger to prove that the apparent and not real, and observed that, “This, in our opinion, is
a superficial approach to the problem. The matter has to be considered in the light of human
probabilities…. Similarly the observation…. that if it is alleged that these tickets were obtained
through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The
transaction about purchase of winning ticket takes place in secret and direct evidence about
such purchase would be rarely available In our opinion, the majority opinion after considering
surrounding circumstances and applying the test of human probabilities has rightly concluded
that the appellant’s claim about the amount being her winning from races is not genuine. It
cannot be said that the explanation offered by the appellant in respect of the said amounts has
been rejected unreasonably”. We will be superficial in our approach in case we examine the
claim of the assessee solely on the basis of documents filed by the assessee and overlook clear
the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the
ground realities. As Hon’ble Supreme Court has observed, in the case of Durga Prasad More
(supra),………”it is true that an apparent must be considered real until it is shown that there
are reasons to believe that the apparent is not the real party who relies on a recital in a deed
has to establish the truth of those recitals, otherwise it will be very easy to make self-serving
statements in documents either executed or taken by a party and rely on those recitals. If all
that an assessee who wants to evade tax is to have some recitals made in a document either
executed by him or executed in his favour then the door will be left wide open to evade tax. A
little probing was sufficient in the present case to show that the apparent was not the real. The
taxing authorities were not required to put on blinkers while looking at the documents
produced before them. They were entitled to look into the surrounding circumstances to find
out the reality of the recitals made in those documents”. As a final fact finding authority, this
Tribunal cannot be superficial in its assessment of the genuineness of a transaction, and this
call is to be taken not only in the light of the face value of the documents sighted before the
Tribunal but also in the light of all the surrounding circumstances, the preponderance of
human probabilities and ground realities. There may be a difference in subjective perception
on such issues, on the same set of facts, but that cannot be a reason enough for the fact-finding
authorities to avoid taking subjective calls on these aspects, and remain confined to the
findings on the basis of irrefutable evidence. Hon’ble Supreme Court has, in the case of Durga
Prasad More (supra), observed that “human minds may differ as to the reliability of a piece of
evidence but in that sphere the decision of the final fact finding authority is made conclusive by
law”. This faith in the Tribunal by Hon’ble Courts above makes the job of the Tribunal even
more onerous and demanding and, in our considered view, it does require the Tribunal to take
a holistic view of the matter, in the light of surrounding circumstances, the preponderance of
probabilities and ground realities, rather than being swayed by the not so convincing, but
apparently in order, documents and examining them, in a pedantic manner, with the blinkers
on.
10. We may also add that the phenomenon of shell entities being subjected to deep scrutiny by
tax and enforcement officials is rather recent, and that, till recently, little was known, outside
the underbelly of the financial world, about modus operendi of shell entities. There were,
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therefore, not many questions raised about the genuineness of transactions in respect of shell
entities. That is not the case any longer. Just because these issues were not raised in the past
does not mean that these issues cannot be raised now as well, and, to that extent, the earlier
judicial precedents cannot have blanket application in the current situation as well. As Hon’ble
Supreme Court has observed in the case in Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai
AIR 1976 SC 1455 “It is trite, going by Anglophonic principles that a ruling of a superior court
is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of
facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu
we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison
house of bigotry, regardless of the varying circumstances and myriad developments. Realism
dictates that a judgment has to be read, subject to the facts directly presented for consideration
and not affecting the matters which may lurk in the dark”. Genuineness of transactions thus
cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in
which genuineness did come up for examination in a very limited perspective and in the times
when shell entities were virtually non-existent.
11. The above approach has met the judicial approval as recently as 2018 when one of the
decisions of this Tribunal, authored by one of us (i.e. the Vice President), in the case of
Pavankumar M Sanghvi (supra) came up for consideration before Hon’ble Gujarat High
Court, and Their Lordships of Hon’ble Gujarat High Court, in the judgment reported as
Pavankumar M Sanghvi v. ITO [2018] 90 taxmann.com 386/404 ITR 601 approved the said
approach and declined to interfere in the matter by observing that “the Tribunal has minutely
examined the position of the lenders, the circumstances under which, the amounts were
allegedly loaned to come to the conclusion that the transactions were not genuine”. The
genuineness of the transactions and examination of circumstances in which money was
received was thus approved to be the determinative factor. The matter did not end there. The
assessee brought the matter before Hon’ble Supreme Court in a special leave petition, and
Their Lordships of Hon’ble Supreme Court, in the judgment reported as Pavankumar M
Sanghvi v. ITO [2018] 97 taxmann.com 398/258 Taxman 160, dismissed the special leave
petition and declined to interfere as well. What essentially follows is that genuineness of a
transaction is one of the most important, foundational and critical factors in determining
whether explanation given by the assessee is acceptable or not is its genuineness and this
genuineness is to be examined in the light of ground realities, rather than random extracts
from judicial precedents isolated from their true context as an exposition of law on a
standalone basis. Undoubtedly, that is a subjective exercise, but that cannot be excuse enough
to fight shy of this call of duty and not to probe the matter properly for taking a well-considered
call on whether the impugned share application monies received, in this case, a genuine
transaction or not. We cannot, as we have noted earlier as well, afford to be rather superficial
in this respect. Being superficial in approach is not only against the ethos of the judiciary, but
certainly an antithesis for justification of the specialized Tribunals like this Tribunal. Unlike in
a court of law, this Tribunal has the benefit of expertise of technical members, from
accountancy and revenue service background, and the least expected of them is to ensure that
the facts are properly analyzed, in the light of expert domain knowledge they have or they are
legitimately expected to have, and set out the same before application of the legal principles on
those facts. That is the approach that has been upheld right upto Hon’ble Supreme Court in the
case of Pavankumar M Sanghvi (supra). On a somewhat similar note, and particularly in the
context of issuance of shares at high premium to the companies which are seemingly shell
companies, Hon’ble Supreme Court has, in the case of Pr. CIT v. NRA Iron & Steel (P.) Ltd.
[2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 observed that “The practice of
ITA Nos. 3561 to 3565/Mum/2019
Assessment years: 2010-11 to 2014-15
Page 11 of 11
conversion of un-accounted money through the cloak of Share Capital/Premium must be
subjected to careful scrutiny. This would be particularly so in the case of private placement of
shares, where a higher onus is required to be placed on the assessee since the information is
within the personal knowledge of the assessee. The assessee is under a legal obligation to prove
the receipt of share capital/premium to the satisfaction of the AO, failure of which, would
justify addition of the said amount to the income of the assessee”. When we take into account
these words of guidance of Their Lordships, clearly a superficial and pedantic approach would
not suffice, and the approach so adopted in Pavankumar M Sanghvi’s case (supra) will be all
the more justified. We have no reasons to deviate from this path. It is in this backdrop that we
proceed to examine the facts of the case and take a call on the genuineness of these
transactions.
10. Viewed thus the approach of the learned CIT(A) is clearly superficial and it does not
need our judicial approval. Just because the money is received the through banking channels and
the confirmations are on record, such facts by itself do not establish genuineness of transactions.
We therefore deem it fit and proper to remit the matter to the file of the CIT(A) for fresh
consideration in the light of the above legal position. While re-examining the matter learned
CIT(A) will categorically deal with the stand of the Assessing Officer with respect to
genuineness of the transaction and pass a speaking order and accordance with the law by way of
speaking order on this point as well.
11. In the result, the appeal is allowed.
12. Learned representatives fairly agree that whatever we decide for the assessment year
2010-11 will apply mutatis mutandis to the remaining assessment years as well. Therefore,
respectfully following above decision assessment year 2010-11. These appeals also stand
allowed for statistical purposes and the matter stand restored to the file of the Assessing Officer.
13. In the result, all the five appeals are allowed in the terms indicated above. Pronounced in
the open court today on the 23rd day of December, 2021
Sd/- Sd/-
Amarjit Singh Pramod Kumar
(Judicial Member) (Vice President)
Mumbai, dated the 23 rd day of December, 2021
Copies to: (1) The appellant (2) The respondent
(3) CIT (4) CIT(A)
(5) DR (6) Guard File
By order
True Copy Assistant Registrar/ Sr PS
Income Tax Appellate Tribunal
Mumbai benches, Mumbai
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