DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE 1(1), JABALPUR V. SHRI INDRABHAN SINGH RATHORE, NARSINGHPUR

ITA 234/JAB/2018

AI Insights

The case revolves around an appeal by the Assistant Commissioner of Income Tax against the order of the CIT(A) which had deleted an addition of Rs. 2,25,00,519 made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition was initially made on the grounds that the assessee, a civil contractor, had not substantiated the nature of the loans received from petty contractors. The CIT(A) found that these were security deposits from sub-contractors and not unsecured loans, as they were backed by TDS deductions and were part of the secured loans shown in the balance sheet. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer had exceeded his jurisdiction by reclassifying these deposits as unsecured loans without proper basis.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23893 (ITAT-JABALPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AOK BHURA
• Assessee Lawyers: SAPAN USRETHE
• Keywords: Additional evidence; TDS
• Section: 250; 11; 68; 131

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SH. KUL BHARAT, VICE PRESIDENT & SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER I.T.A. No. 234/JAB/2018 (Assessment Year : 2015-16) Assistant Commissioner of Income Tax, Circle- 2(1), 2nd Floor, Annexe Building, Income Tax Office, Napier Town, Jabalpur बनाम/ Vs. Shri. Indrabhan Singh Rathor, Kamath Ward, Gotegaon, Narsinghpur through Lal Saheb Rathor (Legal Heir) ̾थायीलेखासं./जीआइआरसं./PAN No. AQXPS2646B (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथȸ कȧ ओर से / Appellant by : Shri. Aok Bhura, DR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Sapan Usrethe, Adv सुनवाई कȧ तारȣख / Date of Hearing : 06/01/2025 घोषणा कȧ तारȣख / Date of Pronouncement : 08/01/2025 आदेश / O R D E R PER NIKHIL CHOUDHARY, ACCOUNTANT MEMBER: This is appeal of the Revenue against the order of the learned CIT(A)-1, Jabalpur passed under section 250 of the Income Tax Act on 30.08.2018.The grounds of appeal are as under:- “1. Whether on the facts and, in the circumstances of the case, the Ld. CIT (A) erred in deleting the addition of Rs. 2,25,00,519/- made u/s 68 of the I.T. Act, 1961 on account of unexplained unsecured loan without appreciating the facts of the case. 2 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) 2. The Ld. CIT (A) erred in deleting the addition of Rs. 2,25,00,519/- without appreciating the fact that the assessee has not submitted any corroborative evidence regarding permission intimation / approval from the various departments to allot the work further on sub-contract. 3. The Ld. CIT(A) has erred in deleting the addition of Rs. 2,25,00,519/- without appreciating the fact that the AO had issued summons during the remand proceedings to creditors and out of 10 creditors only 3 have submitted reply and hence the genuineness of the transaction has not been proved. 4. Any other ground that may be adduced at the time of hearing.” 2. The facts of the case are that the assessee, a Civil Contractor, filed a return of income of Rs.42,58,890/- on 30.09.2015. During the course of assessment proceedings under section 143(3), an addition of Rs.2,25,00,519/- was made with respect to unexplained unsecured loan. Before the learned Assessing Officer, the assessee submitted that it was the amount of SD (Security Deposit) of sub/petty contractors. The details of the said petty contractors alongwith the names and PAN numbers and the amounts deposited were submitted to the learned Assessing Officer. In order to verify the authenticity, identity and creditworthiness of the said security deposits, the assessee was asked to provide the bank statements, returns of income and other related documents in respect of the sub/petty contractors, from whom these deposits had been received. In reply the assessee submitted that the case had been selected for limited scrutiny on four accounts, including for unsecured loans, but the learned Assessing Officer was asking questions with regard to secured loans which was outside the scope of the scrutiny assessment. Without prejudice to the above, the assessee submitted that all the secured loan creditors were petty contractors and income tax payees’ and TDS had been deducted on all payments to them. A copy of the TDS returns showing the deduction while making the payments to these loan creditors were enclosed. It was further submitted that security deposits from petty contractors was shown as secured loans as per Schedule B of the copy of balance-sheet. As per agreement, the assessee was required to obtain the security amount of these petty contractors as, in case of some work not been done or there 3 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) being any loss, it could be easily be recovered from them. Therefore, in the balance- sheet, deposits received from these petty contractors had been shown as liability and against them on the assets side, the assessee had shown deposits vide Schedule H of the balance-sheet. Against the liability of Rs.2,25,00,519/-, the assessee had shown assets of Rs.28266528/-. Thus, no addition was required to be made on account of these secured loans contractors. The assessee also submitted a chart showing the provision of liability and assets in respect of the ten petty/sub- contractors seeking to demonstrate that there was no difference in the amount appearing as liability in his balance-sheet and the amount appearing as assets on their account in Schedule H. It was submitted that the assessee was a Contractor, all the ten loan creditors were petty sub-contractors and these were deposits against various works given to these petty contractors. It filed ledger accounts of all the above loan creditors and submitted that there was no ground for making the addition. However, the learned Assessing Officer concluded that the submission of the assessee that the said loan of Rs.2,25,00,519/- was a secured loan was incorrect, as in the return of income this amount had been shown as unsecured loan. Therefore, it was within the parameters of scrutiny. It was pointed out that in the return of income, the unsecured loans had been shown at Rs.2,29,88,903/-, which included the claimed loan of Rs.2,25,00,519/-. He reasoned that since the bank statements and income tax returns of eight of the said sundry creditors had not been furnished. Their loans were not verifiable and hence they were fit to be added back to the income of the assessee. In respect of two of the sundry creditors, he found that in the returns of the income, no advances had been shown in the name of the assessee or shown at all. Therefore, the learned Assessing Officer concluded that the total claim of Rs.2,25,00,519/- was fit to be added back to the income of the assessee under section 68 of the I.T. Act, 1961. He, therefore, added this amount back and initiated the proceedings under section 271(1)(c). 4 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) 3. The assessee went before the learned CIT(A) and submitted, that the addition of Rs.2,25,00,519/- represented the amount of secured loan and not unsecured loan. It was submitted that all the secured loan creditors had been listed in Schedule B as secured deposit from petty contractors. It was further submitted that as per the agreements, the assessee was required to take security amounts from petty contractors to recover for loss or incomplete works and such security deposits were balanced by assets of similar amount in Schedule H and therefore, there could not be any addition on account of unexplained liability. Furthermore, since the persons concerned were petty contractors, payments had been made to them after deduction of TDS. It was further submitted that it was not known that whether the said petty contractors were maintaining any books of accounts or showing all their receipts in their books of accounts and it was not within the control of the assessee to ensure that. Therefore, the assessee had requested the learned Assessing Officer to issue summons under section 131 of the Income Tax Act to verify the facts. During the course of the appeal proceedings, the assessee also filed an affidavit, from the various sub/petty contractors in support of the fact of having made deposits before the learned CIT(A) and moved an application under Rule 46A of the Income Tax Rules submitting that the affidavits could not be filed at the time of assessment proceedings, as the assessment was taken up at the fag end and the assessee could not contact the aforesaid creditors. Therefore, it was prayed that the additional evidence may be admitted under Rule 46A. The assessee also submitted that all the so called loans taken from the above ten sundry creditors had been duly secured against assets as reflected in Schedule H of its balance-sheet and the learned Assessing Officer had made huge addition, without properly examining the accounting principle. It was submitted that all the sundry creditors were trade creditors and were verifiable and therefore, the learned Assessing Officer was not justified in making an addition under section 68. Accordingly, it was prayed that the addition of Rs.2,25,00,519/- may be deleted. 5 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) 4. The learned CIT(A) allowed the application under Rule 46A and admitted the affidavits as additional evidence. He remanded the matter back to the learned Assessing Officer to furnish a remand report on 5.07.2018 in which it was submitted that the assessee’s claim that it had allotted the work given to it by various department such as MPRRDA, PIU to sub-contractors was not backed up by any permission/approval/intimation from/to the Department to allot the work further on sub contract. Hence, in the absence of such authentic information, it could not be ascertained whether the work had actually been given on sub contract actually. Mere deduction of tax at source was not a full proof evidence of actual work being done unless it was supported by other corroborative evidence. The learned Assessing Officer further submitted that there were various discrepancies in the returns of income of the various sub-contractors. Furthermore, the learned Assessing Officer had made the addition on the basis of the returns in which the same parties had been shown as creditors for unsecured loans. It was further submitted that the learned Assessing Officer had issued summons to these aforesaid parties for production of confirmation letter, audit report, balance-sheet, capital account, copy of return of income and bank statement in respect of the loans given to the assessee but out of ten creditors had submitted a reply and in two cases, the summons had returned undelivered. It was further submitted that the plea of the assessee that these loans were secured, were not acceptable because the same had been shown under unsecured loans in the returns of the assessee and with respect to two parties namely Sh. Bhanu Pratap Singh and Sh. Sanjay Kumar Vaishnav, the so called agreements with these parties, had been prepared after the end of the financial year 2014-15. Furthermore, perusal of the returns of Om Sai Ram Construction, Rajiv Kumar Jain and Kuldeep Patel for the assessment year 2015-16, did not reveal any advance being issued in the name of Shri. Indrabhan Singh. Therefore, the learned Assessing Officer was justified in making the addition. It was further submitted that at the time of completion of assessment, no details had been provided to the learned Assessing Officer for the purposes of issuance of summons. With regard to the claim 6 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) of the assessee that it had shown SD from petty contractor of Rs.2,25,00,519/- as secured loan in Schedule B of the balance-sheet and also made a corresponding deposit in Schedule H of the balance-sheet, it was submitted that it was not clear that the same amounts which had been received from sub-contractors as security deposits that had been shown in Schedule B of the balance-sheet, were also balanced by assets of deposits against various departments for obtaining work contracts. In fact, he observed that there was a larger amount of deposit in Schedule H than there was in Schedule B and therefore, the claim of the assessee was not acceptable. In responding to this remand report, the assessee submitted that the PAN details, the address, the confirmation of loan, the affidavit and other necessary details had been submitted and since the identity of the creditors, genuineness of the transaction and creditworthiness was proved, the learned Assessing Officer was not justified in treating the aforesaid sums as unexplained under section 68. It was submitted that the learned Assessing Officer had been asked to issue summons during the assessment proceedings but had not done so. Furthermore, these creditors were related to business and details in respect of them had been submitted. Furthermore, these were not unsecured loans but secured creditors and these secured loans were lying deposited with departments as security deposits vide Schedule H. It was further submitted that there had been a change in the method of accounting followed by the assessee in this year wherein the security deposits made with the Government departments were put on the asset side and an equal amount of liability relating to security deposits received from the sub-contractors was placed on the liability side. Though, these secured creditors were also appearing as unsecured sundry creditors in Schedule F, they were also there in earlier assessments. It was submitted that when these same persons had been accepted as unsecured sundry creditors in previous years, the learned Assessing Officer should not have taken a different view in respect of the same people, as secured creditors, in this year. It was submitted that when there were credits in the balance-sheet on the liability side and debits of the same creditors in the balance sheet on the asset 7 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) side, only the access of liability over assets could be added back if the creditors were unexplained. Thus, it was submitted that no addition was required to be made. The learned CIT(A) considered all these facts and held that the creditors were petty contractors. Payments had been made to them on which tax were being deducted at source. Details of PAN, payments made to the petty contractors, tax deducted at source and details of security deposit retained, alongwith their affidavits had been filed. The learned CIT(A) held that it was common knowledge that in Government contracts, Contractors have to offer security deposits as in the present case and these security deposits are also raised from the petty / sub-contractors by the main contractor, to safeguard against bad work/incomplete work or losses incurred by them. Therefore, the explanation offered by the assessee in respect of the deposits aggregating to Rs.2,25,00,519/-, cannot be brushed aside as unreasonable. He held that there was also merit in the contention of the learned AR that while the total receipts were Rs.15 Crores. The income has been determined at Rs.2,68,00,000/- i.e. 18% of gross receipts, which was impossible. The learned CIT(A) quoted from various judgments which held that the law did not expect the impossible on the part of the tax payer; if the explanation was prima facie reasonable, it could not be rejected on mere surmises; affidavits filed could not be rejected outright without cross examination; where the assessee’s account were otherwise found to be correct it was ordinarily not possible to show that the credits therein did not come from the sources attributable to them and once the assessee had pointed out the sources from it had got its credits, there was no further burden upon it to show that it had come from accounted sources of those creditors. On the strength of all these judgments, the ld. CIT(A) held that the addition made by the ld. AO was not justified and therefore he deleted the same. 5. The Revenue is aggrieved at this relief granted by the ld. CIT(A) and has accordingly come before us. Sh. Aok Bhura, ld. Sr. DR (hereinafter referred to as the ‘ld. DR’) submitted that it was clear from the AO’s order that the creditors had not 8 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) filed returns or not included advances to the assessee in those returns that had been filed. They had also not filed copies of their bank accounts to justify the fact of credit. He also argued that even after the ld. CIT(A) had admitted the affidavits under Rule 46A, and summons were issued to the assessee’s, a large majority of them did not comply with the said summons. It was, therefore, submitted there were good and sufficient reasons to show that the identity, creditworthiness of the creditors and the genuineness of the transactions were not proved and therefore, the ld. AO was justified in adding these amounts back under section 68 of the Income Tax Act, 1961. Furthermore, it was submitted that these amounts had been reflected as unsecured loans in the income tax returns of the assessee and therefore, they were well within the scope of scrutiny. 6. On the other hand, Sh. Sapan Usrethe, Adv (hereinafter referred to as the ‘ld. AR’) appearing on behalf of the assessee invited our attention to Schedule B of the balance-sheet in which the amount of Rs.2,25,00,519/- was reflected against security deposit from petty contractors. He also invited our attention to Schedule H of the balance-sheet which contained details of deposits assets with the various Government departments and again reiterated the argument that this amount was essentially taken as security deposits from the petty contractors to whom the works that had been allotted to the assessee, were subsequently allotted for execution. It was submitted that all these amounts that had been received from the said petty contractors had been deposited with the various Government Department, which were reflected in Schedule H of its returns. It was, therefore, submitted that since the amounts received from the petty contractors were secured against the deposits made to the Government Department, they could not be called unsecured loans and therefore, could not be brought within the ambit of limited scrutiny as laid down by the CASS. The ld. AR further invited our attention to page 17 of his paper book, which contained the details of payments made to these very parties on account of contract work executed. It was submitted that the assessee had paid a total of 9 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) Rs.13,35,73,586/- to these parties on account of sub contract work executed by them and had deducted 1% TDS amounting to Rs.13,72,902/- on the same. It was submitted that once there was no denying the fact of execution of these contracts by the various sub-contractors and the payments to them or the fact of deposit of security amounts with the Government departments, there was no reason to disbelieve the fact that these security deposit had been sourced from the petty contractors as reflected in the agreements signed between the assessees and these petty/sub-contractors. It was further submitted that the reflection of credit balances with relation to some of these parties in the details of sundry creditors as per Schedule F, amounting to Rs.43,31,652/- would not entitle the ld. AO to go beyond the parameters of limited scrutiny and investigate the security deposit from petty contractors while investigating the unsecured loans from some of these parties. It was, therefore, submitted that the additions were fit to be deleted. 7. We have duly considered the facts and circumstances of the case. It is observed that the case was selected for limited scrutiny on the parameters of; i. Refund claim ii. Failure to pay TDS deducted/collected iii. Unsecured loans iv. Other expenses claimed in Profit & Loss Account 7.1 It is fairly evident from a perusal of the balance-sheet of the assessee that the issue of security deposit from sub/petty contractors, which figure as secured loans within Schedule B of the assessee’s balance-sheet was not a subject matter selected for limited scrutiny under the CASS parameters. Therefore, as per the CBDT guidelines, if the ld. AO was to enquire into the same, he was required to obtain permission from the concerned PCIT in writing before making investigations / additions in the matter. There is no indication in the assessment order that this has 10 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) been done instead the ld. AO has expanded the scope of limited scrutiny by expression of an opinion that the security deposits by the petty / sub-contractors amount to unsecured loans and therefore, could be investigated within the parameters selected under the CASS. As this is clearly outside the jurisdiction of the ld. AO, the addition made by him in this regard is unsustainable on this count. Moreover, we observe that it has been submitted by the ld. AR, that the amounts that were collected from these petty/sub-contractors were against project that were executed by them on behalf of the assessee and the fact remains that the assessee has made payments to the sub-contractors against execution of such contracts which is proved by the deduction of tax at source against such payments. Therefore, there does not appear to be any reason to doubt the receipt of this security money, which has subsequently been deposited with the Government Departments. These have also been confirmed by the depositors by way of affidavits and are backed by agreements. We also note that the unsecured loans as referred to in Schedule C of the assessee’s balance-sheet pertained to altogether different parties and the ld. AO has already satisfied himself that these were on account of opening balances, not calling for any action in this assessment year. We further observe that the unsecured loan in Schedule ‘F’ pertain to different amounts which do not seem to be the subject matter of the additions. Therefore, on the basis of the aforesaid facts, we hold that the addition made by the ld. AO of security deposits from sub/petty contractors is unsustainable, and we accordingly delete the same. 8. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 08.01.2025. Sd/- Sd/- (KUL BHARAT) (NIKHIL CHOUDHARY) VICE PRESIDENT Accountant Member Jabalpur, 08/01/2025 Sh (On tour) 11 ITA No. 234/JAB/2018 Sh. Indrabhan Singh Rathor through Sh. Lal Saheb Rathore (L/H) आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent 3. आयकर आयुÈत / CIT - concerned 4. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, जबलपुर / DR, ITAT, Jabalpur 5. गाड[ फाईल / Guard File आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, जबलपुर / ITAT, Jabalpur "