TaxTMI 
TaxTMI 
2015 (6) TMI 1222
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....y Assessing Officer under section 68 of the Income-tax Act, 1961. 4. That the Ld. CIT(A) -II has erred in law and on facts in deleting the addition of Rs. 1,75,910/- made by Assessing Officer by making of disallowance of interest paid on unsecured loans. 5. That the order of CIT(A)-II be set aside and that of Assessing Officer be restored. 3. Ground No.1 : After hearing both the parties we find that a survey was conducted in the premises of the assessee on 7.9.2006. During the survey, the assessee surrendered a sum of Rs. 1,60,00,000/- on account of certain discrepancies found during the survey. As per the surrender letter filed by the assessee on 13.9.3006, it was undertaken that assessee would declare a net profit of Rs. 1,60,00,000/- upto 7.9.2006 without claiming any kind of deduction or exemption. However, from the perusal of pre-survey and post-survey profit and loss account, the Assessing Officer noticed that for the period 1.4.2006 to 7.9.2006, assessee had shown a net profit of Rs. 83,47,719/-. For the later period i.e form 8.9.2006 to 31.3.2007, the assessee has shown net profitof Rs. 77,75,032/- which include an amount of Rs. 67 lakhs as income surre....
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....uch documents with which profit can be determined at higher figure than the amount surrendered. The net profit may be accepted as such. Under the provision of law it has been clearly decided that Profit always accrued at the end of the year and day to day profit shall not be considered while taking the profit of the whole of the year. The profit of Rs. 83,47,719 was worked out at an estimate figure which has been duly accumulated in the trading account prepared from 01.04.2006 to 31.03.2007. The addition of Rs. 10,75,832 is highly objected and not called for in accordance to facts of the case." 4. The Assessing Officer examined this reply and was of the opinion that assessee was trying to circumvent the undertaking given by him during the survey by misinterpreting the wording used in the surrender letter dated 13.9.2006. The assessee according to this letter had categorically undertaken to declare net profit of Rs. 1.60 crores upto 7.9.2006, therefore, Assessing Officer again issued a show cause notice along with the surrender letter to explain. In the second reply, it was submitted as under:- "That it is admitted fact that letter of surrender/declarat....
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....r before the A.O. itself the appellant had submitted that during the course of survey no books of accounts were impounded and that there was no document as per which profit could be determined at an amount higher than that surrendered by the appellant. It was further submitted before the A.O. vide letter dated 18,12.2009 by the appellant that the appellant made the offer of surrender without any concrete evidence or documents impounded during the course of survey operations. It was specifically mentioned that there was no impounded document on the basis of which income could be determined above the income shown by the appellant. 8.3 Therefore, though as per the surrender letter the appellant appears to have agreed for showing income of Rs. 1,60 crores upto 7.9.2006 in the absence of any specific evidence discussed by the A.O. there would not be any justification to make further addition to the income of the appellant. 8.4 The stand of the appellant in this regard appears to be justified if seen from another angle also. Before the A.O. and during appeal proceedings the Ld. Counsel has explained that the book profit as on 7.9.2006 has been casted taking into ac....
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....k which clearly shows that assessee had underaken to surrender a sum of Rs. 1,60,00,000/- including book profit up to 7.9.2006. The Assessing Officer has not disturbed the results declared by the assessee and he has simply added the profits which were there in the books of the assessee after 7.9.2006 and therefore, addition is justified. 10. We have considered the rival submissions carefully. No doubt the Hon'ble Supreme Court confirmed the decision of Hon'ble Madras High Court in the case of CIT v S. Khader Khan Son (supra). The decision of Hon'ble Supreme Court is not elaborative, therefore, when the decision of Madras High Court is perused, it becomes clear that no addition can be made primarily on the basis of statement recorded during the survey. Therefore, clearly this ratio would be applicable if addition has been made purely on the basis of statement made during the survey. However, in the case before us the statement recorded during the survey itself shows that the agreement dated 9.6.2006 which was executed between the assessee and Smt. Sonia Jain for sale of plot @ Rs. 75000/- per biswa was found. The assessee had replied in response to the query regarding....
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....2006-07 relevant to A.Y. 2007-08 subject to no penal action and prosecution. The firm shall declare net profit of Rs. 1 Crore 60 lacs upto 07-09-2006 and shall not claim any kind of deduction or exemption. The firm shall make entry of net profit of Rs. 1 Crore 60 lacs upto 07-09-2006 which shall be inclusive of book profits. The firm shall pay advance tax on declared net profit in accordance to provision of law. This agreement is without any pressure and made voluntarily. Thanking you. Yours faithfully M/s Ekta Construction Co., Dhuri through partner" 12. The above clearly shows that surrender of Rs. 1,60,00,000/- was made upto the period of 7.9.2006. The Assessing Officer has not disturbed the trading results declared by the assessee and he has simply proved that profit after 7.9.2006 to 31.3.2007 as per books was Rs. 10,75,832/- in addition to surrendered income. In our opinion, the Assessing Officer has rightly added this amount to the income of the assessee. The Ld. CIT(A) has made general observations and has not bothered to verify the survey folder to see whether any incriminating material was found or not and simply allowed the....
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....d the order of Assessing Officer. 17. On the other hand Ld. Counsel for the assessee submitted that in view of the absence of any provision for charging of interest in the partnership deeed, no interest should have been disallowed. 18. We have considered the rival submissions carefully and find that Ld. CIT(A) has rightly observed that interest cannot be calculated merely on the basis of debit entries. The Ld. CIT(A) has recalculated the interest after considering the various credit entries in the partners account and also proportionate profit. The calculation have been reproduced in para 10.2 at pages 9 & 10. We are satisfied with this conclusion and, therefore, uphold the order of Ld. CIT(A). 19. Ground No.3 : After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has taken unsecured loans from various persons. However, from the documentary evidence filed by the assessee in support of the same, in large number of cases in the shape of confirmation, copies of I.T. returns and copies of the bank accounts of such persons, it was noticed that relevant funds were transferred to the assessee's account after invaria....
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....12. He also observed that these persons neither contacted his office nor sought any adjournment, therefore, show cause noticed dated 18.12.2009 was issued to the assessee why these unsecured loans should not be added to the income of the assessee u/s 68 of the Act. It was again reiterated that all the details have already been filed and these persons were existing assesses. It was pointed out that since summons were received by such parties on 16.12.2009 and 17.12.2009, therefore, they could not present themselves before the Assessing Officer. The Assessing Officer observed that since these persons have failed to appear before him despite summons and have not proved their creditworthiness, therefore, such sums were required to be added to the income of the assessee and in this regard he referred to various decisions of Tribunal as well as the decision of Hon'ble Punjab & Haryana High Court in the case of Todar Mal Vs. CIT 106 ITR 619 (P&H) and Calcutta High Court in the case of CIT Vs. Precision Finance Pvt Ltd.(Cal.) and added a sum of Rs. 25,00,000/- u/s 68 of the Act. 22. On appeal, the submissions made before the Assessing Officer was reiterated and certain case laws wer....
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.... regular Income-tax assessees, then no further burden lies on the assessee because Revenue cannot ask for source of source. In these circumstances, he strongly supported the impugned order. 25. We have considered the rival submissions carefully. It is settled law that if an item appears as a credit entry in the books of account, then assessee has to prove the identity of the party, genuineness of the transaction and the credit worthiness of the depositors. 26. In the case before us, Assessing Officer had issued summons to 12 parties out of which only two parties appeared and furnished documents on which the Assessing Officer was satisfied and no addition was made. The other ten parties did not bother to appear or sought any adjournment. The Assessing Officer further noted that cash has been deposited either on the date of issue of cheques to the assessee or immediately few days before issue of such cheques. These circumstances itself creates doubt regarding the creditworthiness of such depositors. The Ld. CIT(A) has deleted the addition by observing that once it is proved that such depositors were regular Income-tax assessees and that their affidavits and PAN numbers were fur....
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....le High Court observed as under:- "In the present case, a perusal of the impugned order passed by the Tribunal reveals that in the instant case the assessee has discharged its onus to prove the genuineness of the cash credit by placing on record before the Assessing Officer sufficient material / evidence. Not only the identity of the creditor has been established by producing the record of the assessee in which those transactions have been duly accounted for, but the assessee has also discharged its onus in explaining the nature of source and the cash credit. It is also well settled that the assessee can be made to explain the source of the credits in the books of account but not the source of the source, i.e. source of the creditors." 29. In this case also it is clear that sufficient evidence was filed i.e. why the addition was deleted. 30. In both of the above cases the cash was not deposited when cheque was given to the assessee or immediately 2 -3 days before that by the creditors, therefore, facts before us are totally different then what has been decided by the Hon'ble Court. 31. The Ld. Counsel had also relied on the decision of CIT Vs. Orissa Corp....
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....asonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 32. Therefore, it is clear that case was decided on peculiar facts because Revenue did not peruse those creditors despite their statement that they were only lending the names particularly when the name of the assessee was not in the list whom these persons had lent their names. The Revenue did not examine the sources of those creditors. The facts in the case before us are different which we will see little later. In any case we would like to observe that law is not static and lot of developments have taken place in respect of interpretation section 68. The issue regarding section 68 was discussed in detail by the Hon'ble Supreme Court in the case of CIT v P. Mohankala 291 ITR 278 wherein it was observed that human probabilities have to be kept in view before accepting the explanation in respect of cash creditors u/s 68. The relevant observations have been made at paras 15 to 18, which are as under:- "15. In order to appreciate the contentions urged before us it would be appropriate to notice se....
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.... offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature." 18. In that case the amount was credited in the capital account in the books and the assessee offered her explanation about the said receipt being her winnings from horse races. The explanation was not accepted. There was no dispute that the amount was received by the assessee from various race clubs on the basis of winning tickets presented by her. This court based on the material available on record found that an inference about such a purchase has to be drawn on the basis of the circumstances available on record inasmuch as no direct evidence about such purchase would be rarely available. This court accordingly upheld the majority opinion of the Settlement Commission based on surrounding circumstances and applying the test of human probabilities. This authoritative pronouncement in our considered opinion is the com....
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....ows that there is not credit worthiness of the depositor and return have been filed just to prove the point that depositor is Income-tax assessee. (ii) Smt. Raksha Devi: It has been stated that in the letter filed before Assessing Officer, copy of which is available at pages 15 & 16 of the paper book, that she is earning income from professional income. It is further stated that total income and even the income from earlier years was kept at home which was deposited in the bank when the amount was lent to the assessee. She has bank account No. 101432322, copy of which is available at pages 39 to 41 of paper book. The relevant portion of the account during the year reads as under:- The above would clearly show that account is opened on 13.04.2006 with a sum of Rs. 1500/- and then a sum of Rs. 3 lakhs deposited in cash on 13.04.2006 and cheuqe is issued to the assessee again on 13.04.2006 which was cleared on the same date. This clearly shows that bank account of Smt. Raksha Devi had no balance and cash was deposited just to facilitate the loan to the assessee. If she is a professional then why bank account was not opened earlier, why the money was kep....
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.... inescapable conclusion one arrives at is that the Revenue authorities as well as the Tribunal found the entire transaction not genuine. There was sufficient evidence on record to suggest that in case of all the depositors, their bank accounts contained meager balance shortly before sizable amount of Rs. 1 lakh and upward were given to the assessee through such account. In such bank accounts cash amounts were credited and immediately entire amounts were withdrawn through issuance of such cheques in favour of the assessee. It was noticed that such creditors did not maintain any books of account. Nowhere their capacity to raise such amount for drawing cheque of sizable amounts was established. In short, therefore, the V very genuineness of the transaction was not established. This, therefore, is not a case where the Revenue makes addition on the assessee failing to establish source of the source. All issues are essentially based on facts and appreciation of evidence on record. No question of law arises. Tax appeal is dismissed." 39. Similar issue arose in the case of Smt. Suman Gupta v CIT (ITA No. 680 of 2012). In that case also the decision of CIT Vs. Orissa Corporation P. Ltd C....
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....see. For assessment year under appeal, she filed return of income at Rs. 1, 02, 476/- only. In the case of Sh. Rampal Singh, it is already noted above that the deposit entry in his case is not explained and prior to issue of cheque, there was bank balance of Rs. 3708/- only. He has filed the return of income for the assessment year under appeal at loss with agricultural income (PB-102). In the case of Shri Shariq Ali Khan, the bank balance in his account was Rs. 1055/- prior to issue of cheque and equivalent cash amount was deposited for issuing cheque in favour of the assessee. He has filed return of income at Rs. 70,373/- plus agricultural income (PB-116). These details noted in the assessment order and the details verified from the paper book would clearly support the findings of the AO that none of the creditors were persons of sufficient means to advance any loan to the assessee. Filing of balance sheets, cash flow statements, cash books etc. have no evidentiary value because according to the remand report filed by the AO, those documents were not filed with the return of income. Moreover, no regular books of account have been maintained by any of the creditors and majori....
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....recorded by the AO about the creditworthiness of the unsecured loans of Rs. 13, 00, 000/- as against the total unsecured loans of Rs. 78, 75, 249/-, does not suffer from any error of law. 9. The Income Tax Appeal is dismissed." Therefore, onus was on the assessee to prove the creditworthiness of the depositor which has not been discharged. The Assessing Officer after having pointed out that cash was deposited before giving loans to the assessee by almost all depositors, still the Ld. CIT(A) did not scrutinize the bank account or bothered to ask the assessee to present these creditors and allowed the relief which, in our opinion, is not correct. As we have discussed only few accounts above, while giving example but we have perused the bank account of all the parties and we find merit in one case i.e in the case of Jatinder Shah from whom loan of Rs. 1 lakh was taken. In that case a sum of Rs. 68,645/- is stated to have been received from M/s D.K Brothers, Dhuri and only an amount of Rs. 31,500/- was deposited, therefore, creditworthiness in this case can be said to have been proved. In the light of the above discussion we confirm the order of Ld. CIT(A) for deleting the ....
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....ounds have been raised:- 1. That the order of CIT(A) Ludhiana and DCIT Ludhiana is against the law and facts. 2. That the CIT(A) Ludhiana was not justified to reject the ground on preliminary objection of selection of case to security against the specific guidelines issued by CBDT, New Delhi. 3. That the Ld. CIT(A) was not justified to sustain the addition of Rs. 50,570/- on account of interest on debit balance of the partners. 4. That the Ld. CIT(A) was not justified to sustain the addition of Rs. 21,397/- on account of interest calculated on advance money which were made to sister concern M/s Ekta Colonizer, Dhuri. 46. Out of above, grounds Nos. 1 to 2 were not pressed and, therefore, the same are dismissed as not pressed. 47. Ground No.3. This issue pertains to disallowance of proportionate interest. The Revenue has filed the appeal on this issue. The Assessing Officer had disallowed interest amounting to Rs. 10,96,280/- by observing that assessee has borrowed the funds and given the same to different partners without interest which was not for business purpose. 48. The Ld. CIT(A) has restricted the disallowance to Rs. 50,570/- by observing th....
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....artment and during the year under Question I earned the income of Rs.: 8:00- from all sources which was below taxable income'under income tax act. That the copy of account of M/s Ekta Construction Co. has already been field and copy of Capital Account alongwith Balance Sheet as on 31-3-2017 & for the previous year ending 31-03-2006 is also enclosed along with my affidavit. That amount of Rs.: 321900/- was lying outstanding with 's Etz Construction Co. as on 31-03-2007. Verifications Signature ਵਜੀਤ ਕੌਰ verify that the content of above affidavit is true to the best of my knowledge and nothing is concealed or misstated. tem MJ NA picks Signature De NOTARIAL 14 Document 2 AFFIDAVIT 1 Raksha Devi W/O Kuldeep Kumar Sushil Kumar Bhar Bhushan Sherpur Road Nr Sharma Backry Dhuri Punjab do hereby solemnly affirm and declare as under:- That I advance Rs.: 300000/- to M/s Ekte Construction Co. Dhuri, Through Payees A/c Dated: 15-04-2006,Cheque No.: 223571 Issued from my bank Account Antained by me, in PNB Dhuri and interest of Rs.: 34706% was accrued on advance Money, That I hade b....
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....ntained by me, in PNB Dhuri and interest of Rs.: 115706 *s accrued on advance топку. That I hade been allotted Pan No.: AZZPS9396K, from Income tax department and during the year under Question 1 earned the income of Rs.: 98229/- from all sources which was below taxable income under income tax act. That the copy of account of M/s Ekta Construction Co. already been field and copy of Capital Account alongwith Balance Sheet as on 31-3-2007 & for the previous year ending 31-03-2006 is also enclosed alongwith my affideal That amount of Rs: 128775 was lying outstanding Co. as on 31-03-2007. and received back on Dated: 919116/PSB 09 by Cheque No.: Verifications Signature TUNG WE I verify at the content of above efidivit is true to the best of my knowledge and nothing is concealed of misstated. * 5-8 Signature TEATEFIC (the Document 5 (SPECIAL? ADHESIVE NOTARIAL AFFIDAVIT Regienu W/O Ashok Kumar Sushil Kumar Shiv Kumar Sherpa Road Nr Post Office Dr Punjab do hereby solemnly affirm and declare as under: That I advance Rs.: 300000/- to M/s Ekta Construction Co. Dhuri,....
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....Rs.: 300000/- to Mis Ekta Construction Co. Dhuri, Through Payees A/c Dated : 09-08-2006,Cheque No.: 240561 Issued from my bank Account maintained by me, in PNB Dhuri and interest of Rs.: 23200 was accrued on advance mecey That I hade been allotted Pan No.: AMKPR9899Q from Income tax department and during the year under Question I eamed the income of Rs.: 3800/- from all sources which was below taxable income under income tax act. That the copy of account of M/s Ekta Construction Co. has already been field and copy of Capital Account alongwith Balance Sheet as on 31-3-4407 & for the previous year ending 31-03-2006 is also enclosed alongwith my affidavit. That amount of Rs.: 323200 was lying outstanding with M/s Ekta Construction Co. as c 31-03-2007. Verification: Signature 1. Kaunter Pot I verify that the content of above affidavit is true to the best of my knowledge and nothing is concealed or misstated. to ter Ble Berry Alz Le P Ù†Ú© Signature Kannsfore 20 Document 8 SPECIAL COHESIVE SPECIAL ADHESIVE KOTARIAL AFFIDAVIT Kamlesh Rani W/O Lal Chand MSG Textil....
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.... affidavit is true to the best of my knowledge and nothing is concealed or stated. The 12/6/08 Selts age w Signature देरानà¥à¤¤à¥€ Document 10 RAMIARY SPECIAL ADRESIVE SPECIAL CHESIVE NOVARIALY OTARIAL AFFIDAVIT iger Sharma S/O Eshwar Sharma Kumar Raj Kumar Deepak Kumar Sherpur Road te Hos. Dhuri Punjab da hereby solemnly affirm and declare as under- That advance Rs.: 200000/- to M/s Ekta Construction Co. Dhuri, Through Payees A/c Dated: 03-03-2007,Cheque No.: 246921 Issued from my bank Account maintained by me, in PNB Dhuri and interest of Rs.: 1870/- was accrued on advance money. That I hade been allotted Fan No.: BQXPS9579Q from Indome tax department. and during the year under Question I earned the income of Rs.: 82000/- from all sources which was below taxable income under income tax act. That the copy of account of M/s Ekta Construction Co. he already been field and copy of Capital Account alongwith Balance Sheet as on 31-3-0007 & for the previous year ending 31-03-2006 is also enclosed alongwith my affidavit. That amount of Rs. 201870 was lying outstanding with M'....