AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 251
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....ness of the capital introduced. 3. The CIT(A) has erred in law and on facts in restricting the addition to Rs. 2,50,000/- against Rs. 90,54,000/- and Rs. 11,877/- against Rs. 3,96,569/- made on account of unexplained credits and on account of disallowance of interest on unexplained unsecured loans respectively ignoring the fact that the addition was made in the absence of cogent evidence to substantiate the creditworthiness of the persons and genuineness of the transaction. 4. The CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,09,499/- made on account of disallowance of interest on term loan by not appreciating the facts that the addition was made on account of disallowable pre operational expenses. 5. The CIT(A) has erred in law and on facts in deleting the addition of Rs. 43,25,930/- made on account of unexplained Sundry Creditors ignoring the fact that the transaction were not substantiated by the concerned parties." 2. At the outset, Learned D. R. submitted that CIT(A) has deleted the additions made by the Assessing Officer in view of some additional evidences filed by the assessee. She heavily placed her reliance on the ord....
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....ccount of introduction of capital by the partners of the firm has been deleted by CIT(A) on the basis of remand report and also on the basis of rejoinder to the remand report. The Assessing Officer had made additions for additions to the capital made by various partners by holding as under: "i. Sri Mahesh Kumar Jain:- The opening balance of capital is Rs. 4,98,088/- and thereafter Rs. 75,000/- has been contributed on 06.06.2006, Rs. 25,000/- has been contributed on 07.06.2006 and Rs. 4,00,000/- has been contributed on 13.09.2006. It has been stated by assessee that the funds were provided by him out of withdrawal from his SB account No.20012034 and 20834907181. Copies of bank account have been examined. It is seen that on 06.06.2006 only Rs. 25,000/- is withdrawn from bank, against Rs. 75,000/- deposited in capital account and therefore remaining Rs. 50,000/- remains unexplained. Regarding rest of the amount the explanation of assessee is supported by entries in bank account and therefore the balance amount is treated as explained. As such the amount of Rs. 50,000/- is treated as unexplained cash credit in the books of accounts of assessee and is added to its tota....
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....s capital on 04.04.2006/11.07.2006 has been treated as unexplained, therefore the proportionate interest on capital amounting to Rs. 55,562/- is also disallowed and added to the total income of assessee. iii. Smt. Vimla Devi:- The opening balance of capital is Rs. 1,54,312/-and thereafter Rs. 6,00,000/- has been contributed on 21.03.2007. It has been stated by assessee that the funds were provided by her out of withdrawal from her SB account No.01190019508 with State Bank of India, Lakhimpur Kheri. A perusal of bank account reveals that there is credit entry of Rs. 6,00,000/- in this bank account on 21.03.2007. No explanation or details/documents in respect of amount of Rs. 6,00,000/- credited on 21.03.2007 has been provided by the assessee or partner. As such the amount of Rs. 6,00,000/- is treated as unexplained cash credit in the books of accounts of assessee and is added to its total income u/s 68 of the I.T. Act 1961. Since the above amount of Rs. 6,00,000/- introduced as capital on 21.03.2007 has been treated as unexplained, therefore the proportionate interest on capital amounting to Rs. 2,170/- is also disallowed and added to the total income of assessee. ....
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....ng balance of capital is debit balance Rs. 8,27,264/- and thereafter Rs. 10,00,000/- has been contributed on 08.04.2006 and Rs. 3,00,000/- has been contributed on 10.08.2006 from his saving bank account with State Bank of India, Lakhimpur-Kheri SB account No. 01190016430. With regard to Rs. 10,00,000/- it has been stated that this was amount withdrawn from M/s Bajrang Sugar Industry. With regard to Rs. 3,00,000/- it has been stated that this was out of loans of Rs. 1,00,000/- each taken from three persons i.e. Sri Hemant Singh, Sri Mangal Singh and Sri Gurdeep Singh. However no details/documents in respect of the entire amount of Rs. 13,00,000/- has been provided by the assessee or partner. As such the amount of Rs. 13,00,000/- is treated as unexplained cash credit in the books of accounts of assessee and is added to its total income u/s 68 of the I.T. Act 1961. Since the above amount of Rs. 13,00,000/- introduced as capital on 08.04.2006/10.08.2006 has been treated as unexplained, therefore the proportionate interest on capital amounting to Rs. 1,40,777/- is also disallowed and added to the total income of assessee. vii Smt. Shikha Gupta:- The opening ba....
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....nce the above amount of Rs. 12,00,000/- introduced as capital on 15.05.2006/21.03.2007 has been treated as unexplained, therefore the proportionate interest on capital amounting to Rs. 1,05,954/- is also disallowed and added to the total income of assessee." 4.1 The Assessing Officer during remand proceedings had examined the additional evidences and has held in favour of the assessee in respect of few partners and in respect of some of them he has recommended the addition. The finding of the Assessing Officer in the remand report in respect of these partners is reproduced below: "i. Sri Mahesh Kumar Jain:- During the assessment proceedings the AO had added Rs. 50,000/- as unexplained capital of the assessee and interest of Rs. 4,931/- on the unexplained capital. During the hearing in reference to remand called for CIT(A) and verification of bank statement of Shri Mahesh Kumar Jain it is found that in account no. 20834907181 the amount of Rs. 50^000/- was withdrawn by shri Mahesh Kumar Jain on 06.06.2006 is reflected. ii. Sri Surendra Kumar:- The AO had added Rs. 6,00,000/- against total capital introduced of Rs,15,00,000/- during the....
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....regard assessee had submitted copy of!account of Smt. Ram Kumari in the books of M/s Bajrang Sugar Industries during the assessment proceedings for verification, but had failed to produce copy of bank account of M/s Bajrang gar Industries for cross verification. Now the assessee has submitted complete copy of bank statement. v. Smt. Anju Gupta:- During the assessment proceedings the AO had added Rs. 9,50,000/- as unexplained capital of the assessee and charge interest of Rs. 85726/- on the unexplained capital. Now assessee has submitted his reply before CIT(A) as well as AO and stating that Rs. 5,00,000/- were withdrawn from M/s Bajrang Sugar Industries which was given as a loan to M/s Bajrang Sugar Industries. In this regard assessee had submitted copy of account of Smt. Anju Gupta in the books of M/s Bajrang Sugar Industries during the assessment proceedings for verification, but had failed to produced copy of bank account of M/s Bajrang Sugar Industries for cross verification at the time of assessment. Now the assessee has submitted complete copy of bank statement. Further Smt. Anju Gupta had stated that Rs. 4,50,000/- was introduced as capita....
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....- is seen on 14.08.2006 which has been explained as loan taken from Sri Pankaj Mittal. His confirmation has also been provided. However another credit entry of Rs. 2,00,000/- is seen in the bank account on 23.08.2006 for which no explanation or details/documents have been provided. iThis amount of Rs. 2,00,000/- has been introduced as capital in the firm and has remained unexplained. Accordingly AO had rightly treated this amount of Rs. 2,00,000/- is as unexplained cash credit entry in the books of assessee and is added to its total income u/s 68 of the I.T. Act 1961. viii. Shalu Gupta: During the assessment proceedings the AO had added Rs. 12,00,000/- as unexplained capital of the assessee and charge interest of Rs. 1,05,954/- on the unexplained capital. Now assessee has submitted before CIT(A) as well as AO that Rs. 10,00,000/- was withdrawn from M/s Bajrang Sugar Industries which was given as a loan to M/s Bajrang Sugar Industries. In this regard assessee had submitted copy of account of Srhl. Shalu Gupta in the books of M/s Bajrang Sugar Industries during the assessment proceedings for verification, but had failed to produce copy of bank account of M/....
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....plained. The relevant findings of the CIT(A) are reproduced below: "The appellant explained during appellate proceedings that the amount of Rs. 10,00,000/- was withdrawn from M/S Bajrang Sugar Industries, which has been verified by the AO. The objection of the AO in remand report that there is one entry of Rs. 3,00,000/- which does not explain the loans from friends is not correct so far as there are two entries in the bank passbook on 05.08.2006 for Rs. 2,00,000/- and Rs. 1,00,000/- corresponding to three cheques deposited by two pay in slips. In view of the aforesaid explanation furnished by the appellant the additions of Rs. 13,50,000/- and proportionate disallowance of Rs. 1,40,777/- on account of interest does not survive." Similarly, in the case of Smt. Shikha Gupta, the Assessing Officer during remand proceedings recommended the addition of Rs. 2,00,000/-, however, CIT(A), after considering the rejoinder to the remand report, deleted the same by holding as under: "4(6)(vii) Smt Shikha Gupta made a contribution of Rs. 2,00,000/- on 23.08.2006 out of withdrawal from her account number 101736 with Urban Cooperative Bank Ltd., Lakhimpur Kheri. The AO found t....
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....ed additions in respect of all the persons. However, learned CIT(A) allowed relief for such additions by holding as under: "5(5) I have examined the facts and circumstances of the case. I have considered the findings of the AO in the assessment order and the submissions of the appellant. I have also considered the observations of the AO in the remand report and the comments of the appellant thereon. I find that the appellant -firm has taken unsecured loans of Rs. 1,15,33,832/- out of which Rs. 90,54,000/- was treated as unexplained and a further disallowance of interest of Rs. 3,96,569/- on loan on the amount treated as unexplained as made by the AO. Before proceeding to examine the issue at hand the details involved in the issue are summarized as under: S.No. Name of Creditor Loan (in Rs.) Loan treated as unexplained (in Rs.) Interest disallowed (in Rs.) 1 Rajendra Nath Gupta HUF 10,16,584/- - - 2 Brejendra Nath Gupta HUF 86,358/- - - 3 Surendra Kumar HUF 6,37,960/- - - 4 S....
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....ccount the genuineness of transaction cannot be proved. In view thereof the unsecured loan of Rs. 2,50,000/- is not satisfactorily explained and therefore the addition of Rs. 2,50,000/- is confirmed. The AO is also justified in disallowing the corresponding interest of Rs. 11,877/- as the loan is not explained. 5(6)(it)(a) Shri Rakesh Gupta (S. No. 8) has given loan amounting to Rs. 2,50,000/- to the appellant on 21.07.2006. On verification of Bank statement of Shri Rakesh Gupta, it was seen that the available balance as on 07.06.2006 was Rs. 1,66,029/. Thereafter two cheques were deposited in this bank account amounting to Rs. 50,000/- and Rs. 57,000/- on 07.06.2006 and 07.07.2006 respectively. The amount of Rs. 1,07,000/- was explained to have been received from father. Shri Rakesh Gupta is stated to be retired teacher having pension income. The appellant has filed confirmation of the creditor whose PAN is AGAPG6603M. 5(6)(ii)(b) When the assessee has filed confirmations of the cash creditors, the initial burden placed upon the assessee can be said to have been discharged and if there is any doubt with regard to the creditworthiness, the Assessing Officer should....
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....00/- and Rs. 20,8777-. 5(6)(iii)(a) Shri Yogesh Gandhi (S. No. 9) During the assessment proceeding the AO made additions of Rs. 2,00,000/- and proportionate disallowance of interest of Rs. 11,244/-because on verification of bank statement it was found that the creditor had deposited cash of Rs. 2,00,000/- on 12.10.2006 and the same was transferred to the appellant on next day i.e. 13.10.2006. Shri Yogesh Gandhi (PAN No. AGZPG0874B) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not accepted the loan as genuine for the sole reason that cash was deposited in the bank account of the creditor prior to issue of cheque. 5(6)(iii)(b) In the case of Dushiant Kumar vs. ITO {ITA No. 468/2014, Date of Pronouncement - 27.11.2015 } Hon'ble ITAT, Amritsar Bench held that it is not the responsibility of the assessee to prove the source of funds in the hands of lender so long as it produces the lender before the AO who confirm the fact of lending money to assessee. In "Sarogi Credit Corporation vs.-CIT, 103 ITR 344 (Patna), it has been held that it is not for the assessee to explain further as to how the or in what circumstances the ....
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.... with income Tax Officer, Barabanki vide PAN No. AADFS8786J and has confirmed having advanced loan on interest of 12% to the appellant. 5(6)(iv)(b) In the facts of the present case, it is a matter of record that the assessee has produced confirmation letters in respect of the creditor wherein not only the identity of the creditor with its address has been furnished but income tax particulars including PAN has also been given. Therefore, the identity of the creditor remains established. Also, it is evident, that the entire transaction has been through proper banking channel. Therefore, as far as the assessee is concerned, the genuineness of the transaction has been established as not only the transaction is through banking channel but the source of such credit has also been proved by the assessee. Now coming to the third ingredient, the creditworthiness of the creditor, it is to be noted that the creditor has not only confirmed of having advanced the money to the assessee but have also stated that it is out of its own sources, it is also not disputed that the creditor is income tax assessee' in the role of the department. In view thereof and relying on case authorities ....
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..../- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings the AO verified the bank account and found that the opening balance as on 01.04.2006 was Rs. 2,33,736/- and an amount of Rs. 28,000/- was received from his father, which was not satisfactorily proved by the creditor. I find that Shri Siddhartha Gupta (PAN No. AJRPG7002Q) has confirmed having given loan by cheque to the appellant on interest of 12%. In the case of Hastimal V. CIT (49 ITR 273)(Mad.) Tolaram Daga V. CIT (59 ITR 632)(Assam) Nemichand Kothari v. CIT (264 ITR 254) (Gau) it has been held that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 2,50,000/- is satisfactorily explained and therefore the addition of Rs. 2,50,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 28,521/- as the loan is explained. The appellant gets relief of Rs. 2,50,000/- and Rs. 28,521/-. 5(6)(viii) Shri Vipul Jain (S. No 5) During the assessment proceeding the AO m....
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....ed. The AO is therefore not justified in disallowing the corresponding interest of Rs. 16,866/- as the loan is explained. The appellant gets relief of Rs. 3,00,000/- and Rs. 16,866/-. 5(6)(x) Shri Vijay Gupta (S. No. 17) During the assessment proceeding the AO made additions of Rs. 4,49,000/- and proportionate disallowance of interest of Rs. 17,024/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings on verification of bank statement it was found that the creditor had deposited cash of Rs. 4,00,000/- on 07.12.2006 and the same was transferred to the appellant on next day i.e. 08.12.2006. . I find that Shri Vijay Gupta (PAN No. AEYPG2910D) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case ....
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....bted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 3,00,000/- is satisfactorily explained and therefore the addition of Rs. 3,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 10,553/- as the loan is explained. The appellant gets relief of Rs. 3,00,000/- and Rs. 10,553/-. 5(6)(xiii) Shri Krishna Mittal, HUF (S. No. 13) During the assessment proceeding the AO made additions of Rs. 3,00,000/- and proportionate disallowance of interest of Rs. 10,553/-as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. The necessary documents have been provided by the appellant in remand proceedings and the AO has not drawn any adverse inference on the loan taken by the appellant from Shri Krishna Mittal, HUF (PAN No. AARHS5435C), who has also confirmed t....
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.... The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 1,00,000/- is satisfactorily explained and therefore the addition of Rs. 1,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 3,321/- as the loan is explained. The appellant gets relief of Rs. 1,00,000/- and Rs. 3,321/-. 5(6)(xvi) Smt. Poonam Agarwal (S. No. 19) During the assessment proceeding the AO made additions of Rs. 1,00,000/- and proportionate disallowance of interest of Rs. 3,321/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. The necessary documents have been provided by the appellant in remand proceedings and the AO has not drawn any adverse k inference on the loan taken by the appellant from Smt. Poonam Agarwal (PAN No.....
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....ussed supra the unsecured loan of Rs. 1,00,000/- is satisfactorily explained and therefore the addition of Rs. 1,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 395/- as the loan is explained. The appellant gets relief of Rs. 1,00,000/- and Rs. 395/-. 5(6)(xix) Smt. Kumud Gupta (S. No. 23) During the assessment proceeding the AO made additions of Rs. 1,00,000/- and proportionate disallowance of interest of Rs. 395/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings on verification of bank statement it was found that the creditor had deposited cash of Rs. 1,00,000/- on 20.03.2007 and the same was transferred to the appellant on next day i.e. 21.03.2007.. I find that Smt. Kumud Gupta (PAN No. AHNPG7329N) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly ....
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....t of Inspector was put to use on 01.02.2007 whereas as per AO the production started on 19.02.2007. I find that the AO disallowed proportionate interest of Rs. 2,09,499/- for the period 01.02.2007 to 19.02.2007 without considering the fact that the interest was paid for the loan taken for a new plant and machinery installed in already running unit. It is not a case where a new business has come into existence rather a case of new plant and machinery (boiler) installed in an already existing business. 6(4) Hon'ble Supreme Court in Challapalli Sugars Limited Vs. Commissioner of Income-tax, A.P. (1975) 98 ITR 167, Hon'ble Madras High Court in India Cements Limited Vs. Commissioner of Income-tax, Madras (1966) 60 ITR 52, lay down inter alia, to the effect that it is only the interest incurred before the commencement of the production, in a separate and distinct unit which had no connection with the existing business with reference to which the capital was borrowed, that can be capitalized and added to the cost of the fixed assets. However, Hon'ble Gujarat High Court and Hon'ble Delhi High Court respectively in Commissioner of Income-tax, Gujarat-ll Vs. Alembic ....
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....his year as well as for the next year, it remains unsubstantiated by the concerned party. Accordingly the above amount of Rs. 43,25,930/- is disallowed and added to the total income of the assessee firm as unexplained liability. 7(2) The appellant has filed written submissions stating therein that the creditors added by the AO were balances on account of suppliers of material or plant and machinery which were duly recorded in the books of accounts and that the non-compliance to notices under section 133(6) of the Act by these parties could not lead to additions in case of the assessee. Reliance has been placed on case authorities cited in the written submissions placed on record. 7(3) I have examined the facts and circumstances of the case. I have considered the findings of the AO in the assessment order and the submissions of the appellant. I have also considered the observations of the AO in the remand report and the comments of the appellant thereon. I find that the credit balance of Rs. 37,33,402/- in respect of M/S Enviro Solutions, a unit of M/S Chema Boilers Limited is in respect of supply and installation of a new boiler. The appellant has taken a loan for....