TaxTMI 
TaxTMI 
2018 (2) TMI 251
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.... 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 order of the Assessing Officer. 3. On the other hand, Learned A. R. submitted that....
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.... 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 It is seen that on 06.06.2006 only Rs. 25,000/- is withdrawn from bank, against Rs. 75,000/- deposited in capital account and therefore remaining Rs. 50,000/- remains unexplained.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 total income u/s 68 of the I.T. Act 1961. Since the above amount of Rs. 50,000/- introduced as capital o....
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.... 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. iv. Smt. Ram Kumari: The opening balance of capital is Rs. 2,75,959/-and thereafter Rs. 8,00,000/- has been contributed on 21.03.2007. It has been stated by....
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.... 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 balance of capital is Rs. 44,293/-and thereafter Rs. 2,00,000/- has been contributed on 23.08.2006. It has been stated by assessee that the funds were provided by her out of withdrawal from her SB account No.101736 with Urban Coop....
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.... 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 year as unexplained capital introduced by Sri Surendra Kumar and interest of Rs. 55,562/- was also disallowed on the unexplained capital. Now assessee has submitted fresh evidences before CIT(A) as well as AO and stated that Rs. 5,00,000/- were withdrawn from M/s Bajrang Sugar Industries which wa....
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....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 capital in the firm and a credit balance of Rs. 4,58,221/- was available on 08.05.2006 in her bank account. In the support of her contention copy of bank account no.01190014869 was submitted at the time of assessment proceeding. vi Sri Ravindra Nath Gupta:- During the assessment proceedings the AO had added Rs. 13,00,000/- as unexplained capital of the assessee and charge interest of Rs. 1,....
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.... 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/s Bajrang Sugar Industries for cross verification at the time of assessment. Now the assessee has submitted complete copy of bank statement1 for verification. Further assessee has stated that remaining amount of Rs. 2,00,000/-was introduced as capital in the firm, was available in the bank account of Smt. Shalu Gupta. In the support of the contention a copy of bank account no.01190020310 was also submitted at the time of assessment proceeding. The AO ha....
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....00/- 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 that Rs. 2,00,000/- deposited in the firm on 14.08.2006 was returned to partner on 17.08.2006. Subsequently Rs. 2,00,000/- was again deposited on 23.08.2006. In the bank account the credit entry of Rs. 2,00,000/- seen on 14.08.2006 was explained as loan taken from Shri Pankaj Mittal. However another credit entry of Rs. 2,00,000/- was seen in the bank account on 23.08.2006 for which no explanation was provided. I find that the AO has failed to appreciate that the cheque deposited on 14.08.2006 bounc....
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....s 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 Siddhartha Gupta 2,75,612/- 2,50,000/- 28,521/- 5 Vipul Jain 2,17,655/- 2,00,000/- 19,660/- 6 Arvind Jain 1,50,000/- 1,50,000/- 7,126/- 7 . Vikas Jain 2,50,000/- 2,50,000/- 11,877/- 8 Rakesh Gupta 2,68,747/- 2,50,000/- 20,877/- 9 Yogesh Gandhi 2,10,097/- 2,00,000/- 11,244/- 10 Pradeep Mittal 3,15,145/- 3,00,000/- 16,866/- 11 Suresh Chandra Gupta 2,58,193/- 2,50,000/- 9423/- 12 Nitin Gupta 3,09,477/- 3,00,000/- 10,553/- 13 Shri Krishna Mittal HUF 3,09,477/- 3,00,000/- 10,553/- 14 Pankaj....
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.... the creditors directly and in the absence of taking such recourse, the Assessing Officer was not justified in taking an adverse inference with regard to the creditworthiness of the creditors. A reference in this connection may be made to the decision of Hon'ble Third Member ITAT, Lucknow Bench in the case of Vishnu Jaiswal Vs ITO in ITA No. 336 (LKW.) OF 2011 dated MAY 1, 2012 wherein it was laid down as under - The Assessing Officer should not have come to any conclusion without examining the cash creditors. The assessee cannot be aware of the source of creditors, which would be within the personal knowledge of the creditors. Mere doubt with regard to the creditworthiness should not automatically reflect in disbelieving the case of the assessee to make addition under section 68 without showing that the assessee would have earned more income from any specific source, in the light of the expression 'may' used in section 68. The provisions of section 68 should be read in conjunction with section 106 of the Evidence Act. In the peculiar facts and circumstances of the case, the assessee has discharged the initial burden of proving identity, genuineness of transactions and ....
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....nce such identity is established and the creditors, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case cannot be accepted and why such deposit to be assessed as the income of the from a suppressed source. Further, in the case of Nimikchand Kothari Vs.CIT 264 ITR 254, Hon'ble Gauhati High Court held that Burden of the assessee to prove the genuineness of the transactions as well as creditworthiness of the creditor is confined to the transactions which have taken place between the assessee and the creditors, and it is not the burden of the assessee to show the source(s) of his creditor or to prove the creditworthiness of the source(s) of the sub-creditors. 5(6)(iii)(c) In the present case, the assessee has successfully discharged his onus but the department has not been able to gather any adequate material, to conclude that the entry in question represented the income of the assessee from suppressed source. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 2,00,000/- is satisfactorily explained and therefore....
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..... The AO is therefore not justified in disallowing the corresponding interest of Rs. 1,99,719/- as the loan is explained. The appellant gets relief of Rs, 50,30,000/-and Rs. 1,99,719/-. 5(6)(v) M/S Jain Enterprises (S. No 25)(PAN No. ABCPD0529N) During the assessment proceeding the AO made additions of Rs. 3,25,000/- and proportionate disallowance of interest of Rs. 15,440/- 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 M/S Jain Enterprises. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 3,25,000/- is satisfactorily explained and therefore the addition of Rs. 3,25,000/-is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 15,440/- as the loan is explained. The appellant gets relief of Rs. 3,25,000/- and Rs. 15,440/-. 5(6)(vi) Shri Arvind Jain (S. No. 6} During the assessment proceeding the AO made additions of Rs. 1,50,000/- and proportion....
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....led 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 Vipul Jain (PAN No. AATPJ4567A) who has also confirmed the loan. In view thereof and relying on case authorities discussed supra the unsecured loan of Rs. 2,00,000/- is satisfactorily explained and therefore the addition of Rs. 2,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of Rs. 19,660/- as the loan is explained. The appellant gets relief of Rs. 2,00,000/- and Rs. 19,660/-. 5(6)(ix) Shri Pradeep Mittal (S. No. 10) During the assessment proceeding the AO made additions of Rs. 3,00,000/- and proportionate disallowance of interest of Rs. 16,866/- 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. 3,00,000/- on 12.10,2006 and the same was transferred to the appellant on next day i.e. 13.10.2006. I ....
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....ied in disallowing the corresponding interest of Rs. 17,024/- as the loan is explained. The appellant gets relief of Rs. 4,49,000/- and Rs. 17,024/-. 5(6)(xi) Shri Suresh Chand Gupta (S. No. 11) During the assessment proceeding the AO made additions of Rs. 2,50,000/- and proportionate disallowance of interest of Rs. 9,123/-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. 2,50,000/- on 11.12.2006 and the same was transferred to the appellant on next day i.e. 12.12.2006. . I find that Shri Suresh Chand Gupta (PAN No. ACEPG0210K) 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 authorities discussed supra ....
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.... 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)(xiv) Smt. Neha Agarwal (S. No. 18) During the assessment proceeding the AO made additions of Rs. 3,00,000/- and proportionate disallowance of interest of Rs. 10,359/- 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. 3,00,000/- on 03.12.2006 and the same was transferred to the appellant on next day i.e. 09.12.2006.. I find that Shri Neha Agarwal (PAN No. AFNPA2690G) 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 authorities ....
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....ed. 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)(xvii) Smt. Uma Gupta (S. No. 21) 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. The AO has doubted the transaction in the remand proceedings as the bank statement was not legible. I find that Smt. Uma Gupta (PAN No. ADDPG5973G) has confirmed having given loan by cheque to the appellant on interest of 12%. Legible copies have also been filed by the appellant. 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. 395/- as the loan is explained. The appellant gets relief of Rs. 1,00,000/- and Rs. 395/-. 5(6)(xviii) Smt. Prachi Gupta (S. No. 22) During the assessment proc....
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....,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(7) In view of the discussion in the foregoing paragraphs and relying on the case authorities discussed in foregoing paragraphs, the additions of Rs. 90,54,000/- and Rs. 3,96,569/- are restricted to Rs. 2,50,000/- and Rs. 11,877/- giving consequential relief to the appellant." From the above findings of learned CIT(A), we find that he has passed a speaking and detailed order whereby he has discussed the explanations and evidences in respect of them with respect to various persons. The learned CIT(A) has made a finding of fact that the creditors had advanced money to the assessee on interest @12% per annum and all the depositors were having PAN & had filed confirmation and therefore, has rightly arrived at the conclusion that the additions were not sustainable and therefore, we do not find any infirmity in the order of CIT(A). In view of the above, ground No. 3 is also rejected. 4.3 As regards ground No. 4 regarding addition of Rs. 2,09,499/- on account of disallowance of interest on t....
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....evenue expenditure. The appellant was therefore entitled to claim deduction for the said amount r of interest under Section 36 of the Act. The disallowance of interest of Rs. 2,09,499/- made by the AO is deleted giving relief to the appellant." The above findings are in accordance with the facts and circumstances of the case and we do not find any infirmity in that. Accordingly, ground No. 4 is also dismissed. 4.4 Now coming to last ground relating to deletion of addition of Rs. 43,25,930/-, the Assessing Officer had made this addition on account of sundry creditors consisting of three parties. In this respect, we find that Assessing Officer during remand proceedings had accepted the explanation in respect of two creditors for which necessary confirmations were filed and in respect of one creditor amounting to Rs. 1,61,885/- he has not accepted the same as the necessary confirmation was not filed and therefore, he had recommended the addition to the extent of Rs. 1,61,885/- only. However, learned CIT(A) has deleted the same also by relying on certain case laws which states that addition of sundry creditors cannot be made u/s 68 of the Act. The findings of CIT(A) in this respect a....
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....e of M/S India Engineering Works is in respect of supply of plant and machinery in respect of which depreciation has been claimed and allowed by the AO as per the books of accounts. 7(4) I find that the creditors added by the AO are not creditors for money rather are trade creditors for supply of material or plant and machinery which have been considered in the profit and loss accounts in form of purchases or claim of depreciation on assets used in manufacturing activity. Similar issue had come up before the Hon'ble ITAT, Allahabad Bench in the case of Joint Commissioner of Income Tax vs. Mathura Prasad Ashok Kumar 101 TTJ 0810 (ALL). In this similar addition on account of sundry creditors was deleted in the 1st Appeal and when the revenue went up to Tribunal against the order of CIT, The Hon'ble Bench of ITAT at Allahabad has upheld the order of CIT by holding that as the purchases have been held to be genuine and accepted as such, the credits that remained outstanding in such account cannot be treated to have remained unexplained. The balance appearing in this account, which included the disputed addition also, is the sum total of purchases that remained unpaid at the e....