MANNETA GARG, KARAULI V. ITO, KARAULI

CO 41/JPR/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3993 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S NEHRA
• Assessee Lawyers: MANISH AGARWAL CA DHK
• Keywords: Unexplained cash credit; Business expenditure; Proportionate interest; Additional evidence; Corroborative evidences; Assessment record; Commercial expediency; Onus to prove
• Section: 133(6); 68

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH HKKXPUN ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 875/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13. THE INCOME TAX OFFICER, WARD KARAULI. CUKE VS. SMT. MANEETA GARG, PROP. MN/S. SHREEJI TELELINK, E-54,MOHAN NAGAR, HINDAUN CITY, KARAULI. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AOYPG 7819 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT CROSS OBJECTION NO. 41/JP/2016 (ARISING OUT OF VK;DJ VIHY LA- @ ITA NO. 875/JP/2016) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13. SMT. MANEETA GARG, PROP. MN/S. SHREEJI TELELINK, E-54,MOHAN NAGAR, HINDAUN CITY, KARAULI. CUKE VS. THE INCOME TAX OFFICER, WARD KARAULI. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AOYPG 7819 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI A.S. NEHRA (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12.07.2018. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 20/07/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS IS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 22 ND JULY, 2016 OF LD. CIT (A), KOTA FOR THE ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS :- 2 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD. CIT (A) HAS ERRED IN :- (I) DELETING ADDITION OF RS. 8,75,543/- MADE BY DISALLO WING PROPORTIONATE INTEREST PAYMENT ; (II) DELETING ADDITION OF RS. 70,50,000/- MADE U/S 68 FO R UNVERIFIED UNSECURED LOANS; (III) THE APPELLANT CRAVES LIBERTY TO RAISE ADDITIONAL GR OUND AND TO MODIFY/AMEND THE GROUND OF APPEAL AT THE TIME OF HE ARING. GROUND NO. 1 IS REGARDING DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST PAYMENT. 2. THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE WHOLESALE TRADING OF MOBILE PHONES AND ACCESSORIES IN THE NAME OF M/S. SHRIJI T ELELINK. THE ASSESSEE FIRM FILED ITS RETURN OF INCOME ON 6 TH JANUARY, 2013 DECLARING TOTAL INCOME OF RS. 8,58,6 80/-. DURING THE SCRUTINY ASSESSMENT, THE AO NOTED THAT T HE ASSESSEE HAS GIVEN LOANS/ADVANCES OF RS. 1,00,96,320/- FREE OF INTERES T WHEREAS THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS. 8,75,543/-. T HE ASSESSEE THOUGH EXPLAINED BEFORE THE AO THAT THESE ADVANCES WERE GIVEN IN THE COURSE OF BUSINESS OF THE ASSESSEE AS THE AMOUNT OF RS. 25 LACS WAS GIVEN AS SECURITY TO M/S. MORE MOBILE & SUPPORT PVT. LTD. WHEREAS AN AMOUNT OF RS. 74,96,32 0/- WAS GIVEN AS AN ADVANCE FOR PURCHASE OF MOBILES WHICH WAS SUBSEQUENTLY PURC HASED BY THE ASSESSEE. AS REGARDS THE AMOUNT OF RS. 1,00,000/- GIVEN TO DR. P USHPENDRA GARG, THE ASSESSEE EXPLAINED THAT ASSESSEES OWN INTEREST FREE FUNDS W ERE SUFFICIENT TO ADVANCE THE AMOUNT OF RS. 1,00,000/-. SINCE THE ASSESSEE DID N OT PRODUCE HIS BOOKS OF ACCOUNTS BEFORE THE AO, ACCORDINGLY, THE AO DISALLOWED THE E NTIRE CLAIM OF INTEREST OF RS. 3 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. 8,75,543/-. ON APPEAL, THE LD. CIT (A) HAS DELETED THE ADDITION MADE BY THE AO BY CONSIDERING THE FACT THAT THE AMOUNT OF RS. 25,00,0 00/- GIVEN TO M/S. MORE MOBILE & SUPPORT PVT. LTD. WAS A SECURITY DEPOSIT BY THE ASS ESSEE AND SHOWN IN THE BALANCE SHEET. SIMILARLY, THE AMOUNT OF RS. 74,96,320/- WA S GIVEN AS AN ADVANCE FOR PURCHASE OF GOODS FROM THE MOBILE STORE SERVICES LT D. THEREFORE, THE MAJOR AMOUNT OF RS. 99,96,320/- WAS CONSIDERED AS GIVEN I N THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR IN RESPECT OF THE SAID AMOUNT. THE REMAINING AMOUNT OF RS. 1,00,000/- WAS FOUND TO BE GIVEN FROM THE ASSESSEES OWN INTEREST FREE FUNDS. 3. BEFORE US, THE LD. D/R HAS SUBMITTED THAT THE AO HAS GIVEN THE FINDING THAT THE ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACC OUNTS AS WELL AS OTHER SUPPORTING EVIDENCE IN SUPPORT OF THE CLAIM THAT THE AMOUNTS W ERE GIVEN IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE. HE HAS RELIED UPON TH E ORDERS OF THE ASSESSING OFFICER. 3.1. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS SHOWN RS. 25,00,000/- AS ADVANCE GIVEN TO M/S. MORE MOBILE & SUPPORT PVT. LTD. IN SCHEDULE-G OF BALANCE SHEET AS A SECURITY PAYMENT. THEREFORE, ONCE THE AMOUNT WAS PAID AS A SECURITY DEPOSIT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THEN THE SAME CANNOT BE TREATED AS AN ADV ANCE FOR THE PURPOSE OF DISALLOWING THE CLAIM OF INTEREST. AS REGARDS THE ADVANCE OF RS. 74,96,320/-, THE LD. A/R HAS SUBMITTED THAT IT WAS A TRADE ADVANCE GIVEN TO M/S. THE MOBILE STORE SERVICES LTD. AND DULY APPEARING IN THE SCHEDULE-G UNDER THE HEAD LOANS AND ADVANCES. HE HAS FURTHER SUBMITTED THAT THIS AMOUN T WAS OUTSTANDING BALANCE OF RUNNING TRADE TRANSACTIONS WITH THE SAID COMPANY. THE ASSESSEE PRODUCED VAT RETURN IN FORM NO. 7A FOR THE PERIOD 01.04.2012 TO 30.06.2012 WHICH SHOWS THE 4 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. PURCHASE OF RS. 90,55,296/- MADE FROM M/S. THE MOBI LE STORE SERVICES LTD. ALL THESE MATERIALS WERE PRODUCED BEFORE THE AO. HOWEV ER, THE AO HAS COMPLETELY DISREGARDED THESE EVIDENCES AND MADE THE DISALLOWAN CE. THE LD. CIT (A) AFTER CONSIDERING THE SUPPORTING EVIDENCE HAS DELETED THE DISALLOWANCE MADE BY THE AO. THE REMAINING AMOUNT OF RS. 1,00,000/- PAID TO DR. PUSHPENDRA GARG IS OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF CAPITAL. THE ASSESSEE WAS HAVING OPENING CAPITAL BALANCE OF RS. 26,18,038 /- WHICH WAS SUFFICIENT FOR SUCH PAYMENT OF RS. 1,00,000/-. THEREFORE, NO DISALLOWA NCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE WHEN THE BORROWED FUND WAS USE D EXCLUSIVELY FOR THE BUSINESS PURPOSE. HE HAS SUPPORTED THE ORDER OF LD. CIT (A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS SHOWN THE ADVANCES TO THR EE PERSONS/PARTIES AS UNDER :- I) SECURITY (MORE MOBIEL AND SUPPORT) RS. 25,00,000/- II) THE MOBILE STORE SERVICES LTD. RS. 74,96,320/- III) DR. PUSHPENDRA GARG RS. 1,00,000/- RS. 1,00,96,320/- THE AO DISALLOWED THE INTEREST CLAIM OF RS. 8,75,54 3/- ON THE GROUND THAT THE ASSESSEE HAS TAKEN LOAN ON ONE HAND AND GIVEN INTER EST FREE ADVANCES TO THESE PARTIES. WE NOTE THAT THE ASSESSEE HAD DULY EXPLAI NED THE NATURE OF ADVANCES GIVEN BY THE ASSESSEE TO THESE THREE PARTIES. THE FIRST AMOUNT OF RS. 25,00,000/- WAS GIVEN TO M/S. MORE MOBILE & SUPPORT PVT. LTD. AS A SECURITY FOR DOING THE BUSINESS WITH THE SAID COMPANY AS THE ASSESSEE IS A WHOLESAL E TRADER IN MOBILES AND ACCESSORIES. THE SAID AMOUNT HAS BEEN SHOWN BY THE ASSESSEE IN THE BALANCE SHEET AS SECURITY DEPOSIT AND, THEREFORE, ONCE THE SAID A MOUNT IS PAID IN CONNECTION WITH 5 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. THE BUSINESS OF THE ASSESSEE THEN THE DISALLOWANCE OF INTEREST EXPENDITURE BY THE AO IS NOT JUSTIFIED. THE BUSINESS TRANSACTION WITH M/ S. MORE MOBILE & SUPPORT PVT. LTD. IS NOT IN DISPUTE AS THE ASSESSEE HAS SHOWN AN OUTS TANDING BALANCE OF RS. 6,15,568/- UNDER SUNDRY CREDITORS FOR TRADE AND, TH EREFORE, IT IS CLEAR THAT THE ASSESSEE WAS HAVING THE BUSINESS WITH THE SAID COMP ANY AND THE SECURITY DEPOSIT WAS MADE FOR THE PURPOSE OF BUSINESS AND COMMERCIAL EXPEDIENCY. THE SECOND AMOUNT OF RS. 74,96,320/- WAS GIVEN TO M/S. THE MOB ILE STORE SERVICES LTD. AND SHOWN AS TRADE ADVANCE. THE ASSESSEE HAS ALSO SHOW N PURCHASES OF RS. 90,55,296/- FROM 01.04.2012 TO 20.06.2012. THEREFOR E, HAVING REGARD TO THE VOLUME OF PURCHASES MADE FROM THE SAID COMPANY, THE ADVANC E OF RS. 74,96,320/- FOR PURCHASES OF GOODS WOULD NOT ATTRACT ANY DISALLOWAN CE ON ACCOUNT OF INTEREST EXPENDITURE. THE THIRD PAYMENT OF RS. 1,00,000/- T O DR. PUSHPENDRA GARG WHO IS A CLOSE RELATIVE OF THE ASSESSEE, WAS CLAIMED FROM TH E ASSESSEES OWN INTEREST FREE FUNDS AVAILABLE IN THE SHAPE OF CAPITAL. WE NOTE T HAT THE OPENING CAPITAL BALANCE OF THE ASSESSEE OF RS. 26,18,038/- IS NOT IN DISPUTE A ND, THEREFORE, THE PAYMENT OF RS. 1,00,000/- BY THE ASSESSEE TO THE RELATIVE WILL BE IN THE CATEGORY OF DRAWINGS AGAINST THE CAPITAL BALANCE AND HENCE CANNOT BE CONSIDERED AS THE PAYMENT WAS FROM THE BORROWED FUND. THE LD. CIT (A) AFTER CONSIDERING A LL THESE FACTS AS AVAILABLE ON THE ASSESSMENT RECORD, HAS DECIDED THE ISSUE AT PAGE 12 TO 14 AS UNDER :- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND A OS FINDINGS. AS REGARDS GROUND NO. 5 RELATED TO THE DISALLOWANCE OF INTEREST ON PROPORTIONATE BASIS, THE FACT IS THAT AS PER THE BA LANCE SHEET OF THE ASSESSEE, THE DEPOSIT OF RS. 25 LAKHS IS SHOWN CLEA RLY IN THE NAME 6 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. AGAINST MORE MOBILE & SUPPORT PVT. LTD. FROM A SEAR CH OF CORPORATE DIRECTORY DATABASE IT IS SEEN THAT THE COMPANY MORE MOBILE & SUPPORT PVT. LTD. IS REGISTERED SINCE 2009 IN DELHI & IS A CTIVE, WITH ADDRESS OF PANIPAT, HARYANA. THIS BASIC INFORMATION COULD EASILY HAVE BEEN ACCES SED BY THE A.O. WHICH HE FAILED TO DO. FURTHER, AS PER THE BALANCE SHEET & VAT RETURNS ALS O, THE GENUINENESS OF THE TRANSACTIONS WITH THE COMPANY WAS PROVABLE. FOR THE A.O. TO DISREGARD THE TRADE TRANSACTIONS & DISALLOW PROPORT IONATE INTEREST ON THE PREMISE THAT ADVANCES MADE TO THIS COMPANY WERE INTEREST FREE LOANS, APPEARS TO BE UNFAIR, MORE SO SINCE HE HAS N OT BROUGHT ANY POSITIVE EVIDENCE TO PROVE HIS CONCLUSION AND RELIE D ONLY ON LACK OF COPY OF ACCOUNTS & ADDRESS DETAILS FOR THIS PURPOSE . THUS, THE VAT RETURNS & EXISTENCE OF THE COMPANY IN CORPORATE RECORDS SHOWS THAT THE TRANSACTIONS WERE GENUINE BUSINESS T RANSACTIONS. FURTHER, THE AUDITORS HAVE DULY CERTIFIED THESE BAL ANCES APPROVING IN VARIOUS SCHEDULES OF THE BALANCE SHEET OF THE ASSES SEE. HONBLE SUPREME COURT OF INDIA IN HERO CYCLES (P) L TD. V. COMMISSIONER OF INCOME-TAX (CENTRAL), LUDHIANA IN 6 3 TAXMANN.COM 308 (SC) WHETHER ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN EXPENDITURE AND PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE BUSINESS OF ASSESSEE ITSELF), REVENU E CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN ARM-CHAIR OF BUS INESSMAN OR IN POSITION OF BOARD OF DIRECTORS AND ASSUME ROLE TO D ECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO CIRCUMSTANCES OF CASE HELD, YES ASSESSEE FILED ITS RETURN CLAIM DEDUCTION OF INTEREST PAID ON BORROWED SUMS F ROM BANK UNDER SECTION 36(1)(III) ASSESSING OFFICER FINDIN G THAT ASSESSEE HAD USED BORROWED FUNDS FOR GIVING INTERES T FREE LOANS TO ITS SUBSIDIARY COMPANY AND DIRECTORS, REJE CTED 7 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. ASSESSEES CLAIM HIGH COURT UPHELD ORDER OF ASSES SING OFFICER IT WAS NOTED THAT ADVANCE TO SUBSIDIARY C OMPANY BECAME IMPERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF UNDERTAKING GIVEN TO FINANCIAL INSTITUTIONS BY ASSE SSEE TO EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO S UBSIDIARY COMPANY TO MEET WORKING CAPITAL FOR MEETING ANY CAS H LOSSES INSOFAR AS LOANS TO DIRECTORS WERE CONCERNED, SAI D LOANS WERE GRANTED OUT OF ASSESSEES OWN SURPLUS FUNDS WHETHER IN VIEW OF AFORESAID, IMPUGNED ORDER PASSED BY HIGH COURT WAS TO BE SET ASIDE HELD, YES [IN FAVOUR OF ASSES SEE] THE OPERATIVE PORTION OF THE JUDGEMENT IS ALSO EXTR ACTED AS UNDER- ..IN THE CASE OF S.A. BUILDERS LTD. V. CIT (APPEALS )[2007 (288) ITR 1/158 TAXMAN 74]. AFTER TAKING NOTE OF AND DISCUSSI NG ON THE SCOPE OF COMMERCIAL EXPEDIENCY, THE COURT SUMMED UP THE LEGA L POSITION IN THE FOLLOWING MANNER :- 26. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUD ENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITUR E MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET I T IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CIT [1979 (118) ITR 200 (SC)], IF THE BORROWED AMOUNT WAS DONATED F OR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROU ND OF COMMERCIAL EXPEDIENCY, THE INTEREST THEREON COULD NOT HAVE BEE N ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN MADHAV PRASADS CASE [1979(118) ITR 200 (SC), THE BORROWED AMOUNT WAS DONATED TO A COLL EGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEES DECEASE D HUSBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY THIS COURT THAT 8 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. THE INTEREST ON THE BORROWED FUND IN SUCH A CASE CO ULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDIENCY. 28. THUS, THE RATIO OF MADHAV PRASAD JATIAS CASE [ 1979 (118) ITR 200 (SC) IS THAT THE BORROWED FUND ADVANCED TO A TH IRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALL OWED UNDER SECTION 36(1)(III) OF THE ACT. 29. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THA N THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS VIDE CIT V. MAL AYALAM PLANTATIONS LTD. [1964 53 ITR 140 (SC), CIT V. BIRLA COTTON SPI NNING AND WEAVIONG MILLS LTD.[1971 82 ITR 166 (SC)], ETC. 13. IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (P) LTD. [ 2002] 254 ITR 377/121 TAXMAN 706 WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDI TURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CL AIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCVUMSTANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINES SMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM TH EIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. UNDER THE CIRCUMSTANCES AS DISCUSSED ABOVE THE LEGA L PRECEDENTS THAT IT IS THE ASSESSEES DECISION TO ADVANCE MONEYS ON THE BASIS OF 9 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. COMMERCIAL EXPEDIENCY WITH OR WITHOUT INTEREST AND THE FACT THAT THE A.O COULD NOT PROVE ANY ADVERSE NEXUS BETWEEN THE T WO PARTIES AND THE ASSESSEE FIRM., IT IS OPINED THAT THE DISALLOWA NCES OF INTEREST ON PROPORTIONATE BASIS TO THE EXTENT OF RS. 8,75,543/- BY THE ASSESSING OFFICER WAS NOT WARRANTED. THE SAME IS ACCORDINGLY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF LD. CIT (A) QUA THIS ISSUE. GROUND NO. 2 IS REGARDING DELETION OF ADDITION OF R S. 70,50,000/- MADE UNDER SECTION 68 FOR UNEXPLAINED CREDIT ON ACC OUNT OF UNSECURED LOANS. 5. THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM SIX PAR TIES AS UNDER :- I) M/S. DIVYANSH TELELINK RS. 20,00,000/- II) M/S. FRONTIER AGENCIES RS. 4,00,000/- III) M/S. SUJAS HEALTH CARE RS. 3,50,000/- IV) SHIV KUMAR TRADING CO. RS. 13,00,000/- V) SHRI GIRRAJ TRADING CO. RS. 15,00,000/- VI) M/S. VINAYAK ENTERPRISES RS. 15,00,000/- RS. 70,50,000/- ------------------ THE AO HAS MADE AN ADDITION OF THE SAID AMOUNT FOR WANT OF SUFFICIENT DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM OF THE ASSESSEE. THE ASSESSMENT WAS FRAMED EX PARTE AND, THEREFORE, THE AO MADE THE ADDITION. ON APPEAL, THE LD. CIT (A) HAS 10 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. DELETED THE ADDITION AFTER CONSIDERING THE DOCUMENT S AVAILABLE ON THE ASSESSMENT RECORD AS WELL AS THE EXPLANATION OF THE ASSESSEE. 6. BEFORE US, THE LD. D/R HAS SUBMITTED THAT THE AO HAS GIVEN THE FINDING THAT THE ASSESSEE HAS NOT PRODUCED SATISFACTORY DOCUMENT ARY EVIDENCE IN SUPPORT OF THE CLAIM DESPITE SUFFICIENT OPPORTUNITY WAS GRANTED BY THE AO. EVEN THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT BEFORE THE AO. HE HAS RELIED UPON THE ORDER OF THE A.O. 6.1. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE AO ISSUED NOTICE TO ALL THESE SIX PARTIES FOR VERIFICA TION OF THE CLAIM AND IN RESPONSE THE LOAN CREDITORS HAVE SUBMITTED CONFIRMATIONS, THEIR IDENTITY, RETURN OF INCOME, BANK ACCOUNT SHOWING THE TRANSACTION THROUGH BANK AS WEL L AS CREDITWORTHINESS AS THEY HAVE ALSO PRODUCED THE RETURN OF INCOME. THIS ENQUI RY WAS CONDUCTED BY THE AO HIMSELF AND DESPITE ALL THESE LOAN CREDITORS HAVE C ONFIRMED THE TRANSACTION OF GIVING LOANS TO THE ASSESSEE THROUGH BANKING CHANNEL, THE AO MADE THE DISALLOWANCE. THE LD. A/R HAS REFERRED TO THE RELEVANT DOCUMENTS IN T HE PAPER BOOK AND SUBMITTED THAT ALL THESE DOCUMENTS WERE PART OF THE ASSESSMENT REC ORD AND PRODUCED BY THE LOAN CREDITORS IN RESPONSE TO THE NOTICE ISSUED BY THE A O. THE LD. A/R HAS SUBMITTED THAT AS PER THE RECORD ALL THESE MATERIALS WERE AVAILABL E WITH THE AO FROM PAGES 19 TO 49 OF THE PAPER BOOK. ALL THE SIX CREDITORS HAVE PRODU CED THEIR CONFIRMATIONS, RETURN OF INCOME, BANK STATEMENT, BALANCE SHEET EXTRACTS WHIC H PROVED THAT THE CLAIM OF THE ASSESSEE IS GENUINE. THESE DOCUMENTS WERE PRODUCED BY THE CREDITORS ON THEIR OWN IN RESPONSE TO THE ENQUIRY CONDUCTED BY THE AO. TH EREFORE, ONCE THE CREDITORS HAVE SUBMITTED THE RELEVANT EVIDENCE AS WELL AS CONFIRMA TIONS, THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO. 11 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT ALL THE SIX CREDITORS HAVE PR ODUCED THE CONFIRMATIONS, RETURNS OF INCOME AS WELL AS THEIR RELEVANT RECORD FROM THE BOOKS OF ACCOUNT TO SHOW THAT THE TRANSACTIONS OF LOANS GIVEN TO THE ASSESSEE WER E DULY RECORDED IN THE BOOKS OF ACCOUNT AND THROUGH BANKING CHANNEL. FURTHER, ALL THESE CREDITORS ARE ALSO ASSESSED BY THE SAME AO AND, THEREFORE, IT WAS NOT DIFFICULT FOR THE AO TO EXAMINE THE GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINES S OF THE CREDITORS. IN FACT, THE AO CONDUCTED THE ENQUIRY AND IN RESPONSE THE RELEVA NT SUPPORTING EVIDENCES WERE FILED BY THESE CREDITORS. THUS IT IS CLEAR THAT DE SPITE RECEIVING THE SUPPORTING EVIDENCE DIRECTLY FROM THE CREDITORS, THE AO HAS MA DE THE ADDITION BY CITING THE REASON THAT THE ASSESSEE DID NOT PRODUCE SUPPORTING EVIDENCE. THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 16 & 17 AS UNDER :- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AOS FINDINGS. AS REGARD GROUND NO. 6 ABOVE REGARDING ADDITION MAD E ON ACCOUNT OF UNSECURED LOANS U/S 68 BY THE AO, IT IS CORRECT THA T AS PER LEGAL PROVISIONS THE ASSESSEE SHOULD PROVE IDENTITY, CAPACITY OF LENDERS AS WELL AS GENUINENESS OF TRANSACTION. HOWEVER, IT HAS ALSO BEEN HELD THAT WH ERE LENDER IS ASSESSED TO TAX, ASSESSEE CAN AVOID ADDITION BY FILING CONFIRMA TION WITH PARTICULARS OF PAN. IN CASES WHERE THE ASSESSEE FURNISHES FULL DET AILS REGARDING THE ALLEGED LENDERS/CREDITORS ETC, IT IS UP TO THE DEPARTMENT T O PERUSE THE MATTER FURTHER TO EXAMINE THESE AND TO EXAMINE THEIR CREDITWORTHIN ESS. IN THE CASE OF BRAHAMANAND AGARWAL, THEKEDAR VS. DC IT JAIPUR BENCH OF ITAT HAVE HELD THAT WHEN NET PROFIT IS ESTIMATED BY AO BY REJECTING THE BOOK RESULT U/S 145(3) OF THE ACT, NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF CASH CREDITOR. ITAT RELIED UPON THE DECISION OF RAJ ASTHAN HIGH COURT IN THE CASE OF CIT VS. G.K. CONTRACTOR 19 DTR 305 (RAJ.) W HEREIN THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT WHEN NET PROFIT IS ESTIMATED BY THE 12 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. ASSESSING OFFICER BY REJECTING THE BOOK RESULT U/S 145(3) OF THE ACT, NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF CASH CR EDITORS. EVEN IF WE GO INTO THE MERITS OF THE CASE ON FACTUA L BASIS, IT IS TO BE SEEN AS TO WHAT INFORMATION WAS MADE AVAILABLE TO THE A.O. AS VERIFIED FROM THE CASE RECORDS AND HOW HE REGARDED IT. THE FOLLOWING LOANS WERE IN QUESTION :- I) M/S. DIVYANSH TELELINK RS. 20,00,000/- II) M/S. FRONTIER AGENCIES RS. 4,00,000/- III) M/S. SUJAS HEALTH CARE RS. 3,50,000/- IV) SHIV KUMAR TRADING CO. RS. 13,00,000/- V) SHRI GIRRAJ TRADING CO. RS. 15,00,000/- VI) M/S. VINAYAK ENTERPRISES RS. 15,00,000/- RS. 70,50,000/- ------------------ THE ASSESSEE SUBMITTED INITIALLY THAT THE BUSINESS HAD CLOSED DOWN SINCE PAST TWO YEARS. HOWEVER, DURING THE ASSESSMENT PROCEEDIN GS, THE FOLLOWING DOCUMENTS WERE SUBMITTED TO THE AO. A) CONFIRMATION OF ACCOUNTS WITH PAN DETAILS FROM ALL THE LENDERS. B) TRANSACTION DETAILS SHOWING ALL LOANS WERE ACQUIRED THROUGH BANKING CHANNELS. C) TDS DEDUCTION DETAILS WHENEVER INTEREST WAS PAID ON THESE LOANS AND THE QUARTERLY STATEMENT WAS DULY SUBMITTED TO THE DEPAR TMENT MENTIONING TDS DEDUCTION FROM INTEREST PAID TO THESE PARTIES A ND THE PAN DETAILS IN CASE OF SH. RAMBABU GUPTA PROPRIETOR M/S. GIRIRAJ T RADING, SH. SHIV KUMAR GUPTA PROP. SHIV KUMAR TRADING CO., MAHENDRA KUMAR GARG (DIVYANSH TELELINK) & DEVENDRA KUMAR GARG (VINAYAK ENTERPRISES). D) FROM A PERUSAL OF THE OTHER DETAILS FILED BY THE AS SESSEES A/R IN THE COURSE OF THE ASSESSMENT PROCEEDINGS IT IS ALSO SEE N THAT SH. RAMBABU GUPTA PROPRIETOR OF M/S. GIRIRAJ TRADIN G COMPANY, SH. SHIV KUMAR GUPTA PROP. OF SHIV KUMAR TRADING CO. AND M/S . NISHA GERA, PROP. OF FRONTIER AGENCIES ARE ASSESSED WITH THE SAME ASS ESSING OFFICER AND THEY HAVE ALL CONFIRMED THE LOANS BY PROVIDING COPY OF ACCOUNTS, RETURN OF INCOME ACKNOWLEDGMENT & COVERING LETTER (INCASE OF 1 ST TWO PARTIES) ETC. E) SIMILARLY, THE TWO PARTIES M/S. VINAYAK ENTERPRISES & DIVYANSH TELELINK WERE LENDERS WHO ARE ALREADY MENTIONED AS PER 40A(2 )(B) NOTE IN THE 13 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. ASSESSEES AUDITED ACCOUNTS ARE ALSO APPARENTLY IN THE SAME A.OS JURISDICTION SO CHECKING THEIR CREDITWORTHINESS SHO ULD NEVER HAVE BEEN AN ISSUE AND ALSO THEIR ACCOUNT COPIES, INTEREST PAYME NTS, PAN DETAILS WERE AVAILABLE WITH THE A.O. THE LOAN ENTRIES ARE ALSO APPEARING IN THE RESPECTIVE LENDERS BALANCE SHEET EXTRACTS WHICH TH E A.O. COULD HAVE EASILY CROSS CHECKED IF HE HAD ANY DOUBTS REGARDING THE SAME AS THEY WERE ASSESSED WITH HIM. FURTHER M/S. VINAYAK ENTERP RISES HAD AN BALANCE OF 40,79,578/- AS OUTSTANDING WHILE THE A.O. QUESTI ONS ONLY LOAN OF RS. 15 LAKHS OBTAINED DURING THE YEAR AS NON-GENUINE. F) XXXXX XXXXXXXX XXXXXXXXXXX G) SINCE ALL THE ABOVE DETAILS WERE PROVIDED IN THE CO URSE OF ASSESSMENT PROCEEDINGS THEMSELVES, IT CANNOT ALSO BE A CASE OF ADDITIONAL EVIDENCE. THE ASSESSEE HAD DISCHARGED ITS PRIMARY ONUS BY PRO VIDING DETAILS OF THE LENDERS. IN CASE THESE PERSONS DID NOT APPEAR FOR P ERSONAL EXAMINATION OR SAME DID NOT RESPOND TO THE 133(6) NOTICES, IT CANN OT BE SAID THAT THESE WERE UNEXPLAINED CASH CREDITS. XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXXXX XXXXXXXXXXX THUS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT AS REGARDS ALL THE LENDERS, THE ASSESSEE HAD DULY D ISCHARGED ITS INITIAL BURDEN OF PROOF REGARDING THE UNSECURTED LOANS TAKEN. THER EFORE, IT IS SURPRISING THAT THE A.O. STILL WANTED TO CONFIRM THE IDENTITY & CRE DITWORTHINESS, DESPITE HIM BEING THE A.O. TO MAJORITY OF THE ABOVE LENDERS. ST ILL, THE A.O. SHOULD HAVE INVESTIGATED FURTHER WITH ALL HIS AVAILABLE TOOLS A ND PARAPHERNALIA AVAILABLE IN CASE IF HE WAS NOT SATISFIED WITH THE FIRST BODY OF SUPPORTING EVIDENCES. IN CASE HE FOULD ANYTHING ADVERSE AND DIFFERENT FROM T HE CLAIMS MADE BY THE ASSESSEE, SUBSEQUENTLY AFTER BRINGING THE DISCREPAN CIES IN THE ASSESSEES CLAIMS AND HIS OWN INVESTIGATION AND CONFRONTING TH E RESULTS TO THE ASSESSEE 14 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. AND GETTING HIS VERSION, MADE THE ADDITION U/S 68 A S PER THE INTENTION OF THE LAW IN THIS REGARD. SINCE HE FAILED TO DO SO IN THE CASES OF ALL THE LE NDERS, THE ADDITION MADE BY HIM IN RESPECT OF THESE CASES OF UNSECURED LOANS TR EATED AS CASH CREDITS, CANNOT BE UPHELD BOTH ON THE FACTS AS WELL AS ON LE GAL PRECEDENTS AS DISCUSSED ABOVE. THUS THE ADDITION OF RS. 70,50,000/- MADE U/S 68 IS DIRECTED TO BE DELETED AND THIS GROUND OF APPEAL IS ALLOWED. THUS IT IS CLEAR THAT THE LD. CIT (A) HAS EXAMINED THE EVIDENCES AVAILABLE ON THE ASSESSMENT RECORD AND FOUND THAT THE AO WAS HAVING ALL THE RELEVANT DETAILS AND SUPPORTING EVIDENCE DURING THE ASSESSMENT PROCEEDIN GS AS CALLED FOR UNDER SECTION 133(6) OF THE ACT. ON EXAMINATION OF THESE DETAILS AND EVIDENCE AS SUBMITTED BY THE SIX CREDITORS, WE FIND THAT THE CLAIM OF THE AS SESSEE WAS DULY SUPPORTED BY THE EVIDENCE PRODUCED BY THE CREDITORS WHO HAVING CONFI RMED THE TRANSACTIONS AND ALSO PRODUCED THE EVIDENCE REGARDING THEIR CREDITWORTHIN ESS AS ALL THESE CREDITORS FILED THEIR RETURNS OF INCOME, THEIR LEDGER ACCOUNT AND B ANK STATEMENTS SHOWING THE TRANSACTIONS OF LOANS GIVEN TO THE ASSESSEE. ACCOR DINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR IRREGULARITY IN THE ORDER OF LD. CIT (A) QUA THIS ISSUE. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE ONLY ISSUE REGARDING TRADING ADDITION MADE BY THE AO OF RS. 4, 49,453/- WAS CONFIRMED BY THE LD. CIT (A). 8. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO REJECTED THE BOOK RESUL T OF THE ASSESSEE FOR WANT OF PRODUCTION OF BOOKS OF ACCOUNTS. THE AO NOTED THAT THE ASSESSEE HAS DECLARED GP 15 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. @ 0.92% AS AGAINST 1.08% IN THE IMMEDIATELY PRECEDI NG YEAR. ACCORDINGLY, THE AO ADOPTED THE GP DECLARED BY THE ASSESSEE IN THE PREC EDING YEAR AND MADE AN ADDITION OF RS. 4,49,453/-. THE LD. A/R OF THE ASS ESSEE HAS SUBMITTED THAT THIS IS THE SECOND YEAR OF BUSINESS OF THE ASSESSEE AND THERE I S A SUBSTANTIAL INCREASE IN THE TURNOVER OF THE ASSESSEE, THEREFORE, MERELY THERE IS A DECREASE IN THE GP RATE DOES NOT WARRANT ANY ADDITION. THUS THE LD. A/R HAS SUBM ITTED THAT WHEN THERE IS AN INCREASE IN THE TURNOVER OF THE ASSESSEE FROM RS. 9 ,60,00,000/- IN THE PRECEDING YEAR TO RS. 28,69,00,000/- DURING THE YEAR UNDER CO NSIDERATION, THE SLIGHT VARIATION IN THE GP RATE DOES NOT WARRANT ANY ADDITION. 8.1. ON THE OTHER HAND, THE LD. D/R HAS RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE AO HAS GIVEN THE COMPARATI VE DETAILS OF THE SALES AND GP DECLARED BY THE ASSESSEE FOR THE EARLIER YEAR AS WE LL AS FOR THE YEAR UNDER CONSIDERATION AT PAGE 3 AS UNDER :- S.NO. A.Y. SALE GROSS PROFIT G.P. RATE N.P. RATE 1 2012 - 13 286929315 2649384 0.92 0.32 2 2011 - 12 96007637 1038243 1,08 062 3 2010 - 11 N.A. N.A. N.A. N.A. THUS IT IS CLEAR THAT THERE IS THREE-FOLD INCREASE IN THE TURNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE I MMEDIATELY PRECEDING YEAR. THIS IS THE SECOND YEAR OF THE BUSINESS ACTIVITIES OF TH E ASSESSEE, THEREFORE, THE DECREASE IN THE GP FROM 1.08% TO 0.92% IS NOT SO SIGNIFICANT HAVING REGARD TO THE THREE-FOLD INCREASE IN THE TURNOVER. EVEN OTHERWISE THE AO HA S TO ESTIMATE THE INCOME OF THE 16 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI. ASSESSEE BY TAKING A REASONABLE AND PROPER BASIS AN D AVERAGE OF THE PAST GP DECLARED BY THE ASSESSEE CAN BE A GOOD GUIDANCE. S INCE THIS IS THE SECOND YEAR OF THE BUSINESS, THEREFORE, ONLY TWO YEARS ARE AVAILAB LE FOR CONSIDERING THE AVERAGE OF THE GP. HENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE VARIATION IN THE GP IS INSIGNIFICANT AND THERE IS AN INCREASE IN THE TURNOVER OF THE ASSESSEE OF MORE THAN THREE TIMES FROM RS.9,60,00,000/- TO RS. 28,69 ,00,000/- THEN THERE IS NO JUSTIFICATION OF MAKING ADDITION BY APPLYING THE GP RATE OF EARLIER YEAR. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DELE TE THE ADDITION MADE BY THE AO ON THIS ACCOUNT. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED WHILE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/07/2018 . SD/- SD/- HKKXPUN FOT; IKY JKWO (BHAGCHAND) ( VIJAY PAL RAO ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 20/07/2018. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-THE ITO, WARD KARAULI, KARAULI. 2. IZR;FKHZ@ THE RESPONDENT-SMT. MANEETA GARG, KARAULI. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 875/JP/2016} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 17 ITA NO. 875/JP/2016 & CO 41/JP/2016 SMT. MANEETA GARG, KARAULI.