GOVDAPPAGOUDA CHANNABASANGOUDA PATIL,HUBLI V. INCOME TAX OFFICER, WARD-3(2), HUBLI

ITA 1461/BANG/2024

AI Insights

The case involves Govdappagouda Channabasangouda Patil, the proprietor of Kalmeshwar Stone Crushing Industries, who appealed against the assessment order for the assessment year 2015-16. The AO had added Rs.1,93,73,140 to the assessee's income as unexplained credits under section 68 and treated Rs.52,70,132 as deemed profit under section 41 due to alleged cessation of liability from sundry creditors. The Tribunal found that the AO had not adequately considered the documents and explanations provided by the assessee regarding the agricultural income and the nature of the creditors. Consequently, the Tribunal directed a re-assessment of the agricultural income and removed the addition under section 41.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396453 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEHA SAHAY
• Assessee Lawyers: NARENDRA SHARMA
• Keywords: Unexplained cash credit; Rejection of books of accounts
• Section: 143(3); 142(1); 68

Judgement Text

"ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1461/Bang/2024 Assessment Year :2015-16 Govdappagouda Channabasangouda Patil Eureka Towers Traffic Island Neeligin Road Karnataka 580 029 PAN NO :AHEPP5491M Vs. ITO Ward-3(2) Hubli APPELLANT RESPONDENT Appellant by : Sri Narendra Sharma, A.R. Respondent by : Smt. Neha Sahay, D.R. Date of Hearing : 10.03.2025 Date of Pronouncement : 30.05.2025 O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 11.6.2024 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1065537171(1) passed u/s 250 of the Income Tax Act (in short “The Act”) for the assessment year 2015-16. 2. The assessee has raised the following grounds of appeal: ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 2 of 12 3. Brief facts of the case are that the assessee being an individual filed his return of income for the AY 2015-16 on 14.9.2015 declaring a total income of Rs.12,74,620/-. The said return of income was processed u/s 143(1) of the Act by the CPC on 15.10.2015. Thereafter the case of the assessee was selected for scrutiny under CASS. Accordingly, notices u/s 143(2) as well as 142(1) of the Act were issued to the assessee calling for the details. The assessee had submitted the details called for on various dates. The assessee is the proprietor of Kalmeshwar Stone Crushing Industries and the books of accounts of the business was audited u/s 44AB of the Act. During the course of assessment proceedings, the AO noticed that the capital of the assessee as on 31.3.2014 was only Rs.1,88,45,325/-, whereas as on 31.3.2015 the balance is shown at Rs.4,79,39,514/-. Thus, there was capital infusion or increase in capital to the tune of Rs.2,90,94,190/-. The assessee explained that the amount infused were from the agricultural ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 3 of 12 income earned by the assessee and his brothers and father. The AO observed that as the assessee had not explained whether the amount given to him by his brothers and father are loan or what, whether returnable or non-returnable, and whether any interest to be paid on the same or not. Further, the assessee had also not explained the mode of transaction. However, the assessee had only submitted the RTC copies of the agricultural land holdings to the tune of 63 acres in support of his agricultural income. Further, the AO observed that few bills in support of purchase of seeds and sale of agricultural produce were also submitted along with copy of the cash flow statement. As the assessee had not produced the copy of sale bills, purchase bills, pahani, details of cultivation in support of agriculture income, the AO proceeded to estimate income of Rs.50,000/- per acre as net income from agriculture after reducing the expenses towards purchase of seeds and other agricultural expenditure and accordingly, treated the balance amounting to Rs.1,93,73,140/- as unexplained income u/s 68 of the Act as detailed below- 3.1 Further, during the course of assessment proceedings, the AO noticed that there is huge outstanding sundry creditors amounting to Rs.53,84,960/-. The AO requested to submit the confirmations in respect of all the sundry creditors, ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 4 of 12 creditworthiness of the creditor as well as date and mode of the transactions. However, the assessee had submitted confirmation for only one creditor i.e. M/s. Yash Tyres amounting to Rs.1,14,828/-. Further, with respect to other sundry creditors, the assessee expressed his inability to submit the confirmation as most of the creditors belong to outside the state of Karnataka who had taken up the BRTS contract in Hubli and after the work, they have left the state. As the assessee failed to produce the details as called for, the AO constrained to presume that they are not trade creditors and accordingly held that there is a remission/cessation of liability to the extent of Rs.52,70,132/- (Rs.53,84,960 (-)Rs.1,14,828) which amounts to deemed profit u/s 41 of the Act. 3.2 The AO accordingly completed the assessment on a total income of Rs.2,59,17,900/- and determined the net tax payable amounting to Rs.1,12,88,220/- by passing order u/s 143(3) of the Act dated 29.12.2017. 4. Aggrieved by the assessment completed u/s 143(3) of the Act dated 29.12.2017, the assessee preferred an appeal before the ld. CIT(A)/NFAC. 5. The ld. CIT(A)/NFAC dismissed the appeal of the assessee with the following observations: ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 5 of 12 6. Aggrieved by the order of ld. CIT(A)/NFAC the assessee has filed the present appeal before this Tribunal. The assessee has also filed paper book comprising 160 pages containing therein as below: ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 6 of 12 7. Before us, the ld. A.R. of the assessee vehemently submitted that assessee is in the business of stone crushing and the books of accounts are audited u/s 44AB of the Act. The authorities below erred in upholding the addition of Rs.1,93,73,140/- as unexplained cash credit u/s 68 of the Act without appreciating that the capital introduced during the year was from the explained sources. Further, the ld. A.R. of the assessee submitted that there was no cessation of liability u/s 41(1) of the Act and the amount payable to creditors as on 31.3.2015 is Rs.4,79,39,514/- as per the audited Balance sheet. Further, the increase in capital was substantiated by providing all the relevant documents to show that the income from agriculture activity of the family was to the tune of Rs.75 to 80 lakhs annually. The assessee had also produced capital account with detailed contribution of each family member along with the record of rights of land holding and the corresponding agricultural income but the AO without accepting the same has estimated the agricultural income amounting to Rs.30 lakhs for three family members. 8. Ld. D.R. on the other hand supported the order of the authorities below. 9. We have heard the rival submissions and perused the materials available on record. On going through the assessment order, we find that the AO has made the additions under two heads as follows: i. Unexplained credits to capital account amounting to Rs.1,93,73,140/- u/s 68 of the Act. ii. Remission/cessation of liability in respect of sundry creditors amounting to Rs.52,70,132/- u/s 41 of the Act. ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 7 of 12 9.1 The assessee is a proprietor of Kalmeshwar Stone Crushing Industries having a stone crusher unit. The books of accounts of the assessee was audited by a Chartered Accountant u/s 44AB of the Act and the AO has accepted the books of accounts of the assessee during the course of assessment proceedings and passed order u/s 143(3) of the Act. 9.2 With regard to first addition i.e. unexplained credits to capital account amounting to Rs.1,93,73,140/- u/s 68 of the Act, we find that as observed by AO, the assessee could not explain the increase in capital and capital infusion to the extent of Rs.1,93,73,140/- and accordingly the AO added the same u/s 68 of the Act. Further, the AO has estimated the agricultural income earned by the assessee as well as of his father and brothers @ Rs.50,000/- per acre as net income from agriculture. Whereas assessee has shown collectively total agricultural income amounting to Rs.62,50,000/- containing names of 4 individuals. 9.3 The main contention of the assessee is that AO has calculated the agricultural income wrongly by considering the income of Rs.30 lakhs for 3 family members. The AO concur in his order that the average income per acre is Rs.50,000/- and accordingly the AO has considered only 60 acres without taking into account the land taken on rent from others and other income of Guava fruit farming. The ld. A.R. of the assessee submitted that agricultural income from lands taken on rental basis is Rs.37,41,250/- i.e. (74.33 acres x Rs.50,000/- per acre for one year). Further, the agricultural income from own land as per the details submitted of the 4 family members are 101.30 acres out of which 11 acres is used for guava fruit farming, which is given on a contract basis since 2010 to two parties which yields an income of Rs.8,25,000/- p.a. Further, from ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 8 of 12 the remaining portion of land i.e. 90.30 acres yields an income of Rs.45,15,000/- per year and accordingly claimed that if we consider the income of only 3 years there is sufficient agricultural income to justify the addition made in the capital account. 9.4 We find that the assessee in support of his agricultural income produced sample bills for sale of agricultural produce along with the details of land being taken for cultivation from others and agreement with the agricultural produce purchasers. Further, before us, the assessee has also filed details of PAN card, IT returns copy of father and two brothers of the assessee along with copy of RTC and agreements in proof of land. The AO however, on the ground that the details submitted by the assessee are not satisfactory and assessee had only submitted vague confirmation of the individuals concluded that it cannot be accepted as evidences for the source of credit. Further, the AO also observed that assessee had not produced any proof like sale bills, purchase bills, pahani, details of cultivation, etc. and accordingly estimated the agricultural income to the tune of Rs.30 lakhs (Rs.50,000/- x 60 acres). Before us, the ld. A.R. of the assessee submitted that the assessee was not given sufficient time for producing the documents and the assessment was completed in a hurry. 9.5 Further, we also find that ld. CIT(A)/NFAC on the ground that the assessee has failed to prove the creditworthiness of the money lenders confirmed the addition of Rs.1,93,73,140/- u/s 68 of the Act. It is an undisputed fact that the AO has accepted the source of Income as agriculture but estimated the same in absence of any proof like sale bills, purchase bills, pahani, details of cultivation, etc. This being so, in the interest of justice and fair play as well as taking into consideration the documents/records filed by way of paper book before us, we deem it fit and proper to remit this issue ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 9 of 12 to the file of AO to decide afresh in accordance with law. The AO is directed to verify the agricultural income of the assessee as well as his father and two brothers for the past three years as submitted along with the land taken on contract/lease basis as claimed by the assessee. The assessee is also directed to produce all the relevant details/documents/record as called for by the AO for proper adjudication of this issue. It is ordered accordingly. 10. In the result, we partly allow this ground of appeal for statistical purposes. 11. Now with regard to the remission/cessation of liability in respect of sundry creditors amounting to Rs.52,70,132/-added as deemed profit u/s 41 of the Act, we found that the AO has added the same on the ground that assessee has not produced the confirmation letter from the creditors. Further, the assessee has failed to prove the creditworthiness of the creditors as well as date and mode of the transaction. 11.1 The ld. CIT(A) on the other hand, dismissed this ground by observing that assessee was required to produce documents which could establish identity as well as creditworthiness of the creditors and genuineness of the transaction. Without the PAN, the genuineness of the transaction cannot be verifiable and accordingly was of the opinion that no interference is required in the assessment order. 11.2 On going through the assessment order, we find that the AO on the one hand constrained to presume that amount of Rs.52,70,132/- are not the trade creditors as declared by the assessee and on the other hand, held that there is a remission/cessation of liability to the extent of Rs.52,70,132/-. It ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 10 of 12 is undisputed fact that books of accounts of the assessee are audited by a Chartered Accountant and the AO has not rejected the books of accounts of the assessee. Further, for the amount to be treated as deemed profit u/s 41 of the Act, firstly there has to be a remission or cessation of a liability. Further, the liability must be a trading liability and not on capital account. 11.3 The AO in his assessment order has himself observed that total sundry creditors as on 31.3.2015 as per audited balance sheet was Rs.53,84,960.28. The assessee before us contended that there was no cessation of liability u/s 41(1) of the Act and the said amount as declared in the balance sheet was payable to creditors as on 31.3.2015. In fact the AR of the assessee submitted that there is a increase in S. Creditors compared to the last year. Before us, the assessee has also produced the copy of ledger accounts of creditors for the year ended 31.3.2015 and 31.3.2016 and also submitted that the assessee had also submitted the confirmation letter to the tune of Rs.42,37,678/- before the ld. CIT(A)/NFAC. Therefore, we agree with the contention of the assessee that there is no remission/cessation of sundry creditors as alleged by the assessing officer. 11.4 In our considered opinion, merely because assessee could not produce the confirmation of outstanding sundry creditors, the AO cannot held to be profit chargeable u/s 41 of the Act as there is no cessation of liability. In the present case, it is not a case of any amount written off/waived by the assessee and therefore, the said amount cannot be added as income u/s 41 of the Act. According to Section 41(1) of the act, any amount of loss or expenditure or trading liability incurred by the assessee and subsequently the assessee obtains some benefit in respect of such loss or expenditure or trading liability, by way of remission or cessation thereof, then ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 11 of 12 the amount of benefit so obtained shall be deemed to be the profits and gains of business or profession. This is regardless of whether the business is continued or existing at the time of receipt of such benefit or cessation or waiver. In our considered opinion, there should be an allowance or deduction claimed by the assessee for any year in respect of loss, expenditure or trading liability incurred and subsequently if the creditor remits or waives any such liability the assessee is liable to pay tax u/s 41 of the Act. The objective of section is to ensure that the assessee does not get away with double benefit, once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to the deduction allowed earlier due to remission of such liability. On going through the audited balance sheet as on 31.3.2015, we find that the assessee has declared total sundry creditors of Rs.53,84,960/-. Since during the course of assessment proceeding the assessee has produced confirmation of only one creditor i.e. M/s. Yash Tyres amounting to Rs.1,14,828/- and accordingly, the AO treated the balance amount of Rs.52,70,132/- as deemed profit u/s 41 of the Act, which in our opinion is not correct and accordingly we delete this addition of Rs.52,70,132/- added by AO u/s 41 of the Act. Accordingly, this ground of appeal of the assessee is allowed. 12. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 30th May, 2025 Sd/- (Waseem Ahmed) Accountant Member Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 30th May, 2025. VG/SPS ITA No.1461/Bang/2024 Govdappagouda Channabasangouda Patil, Hubli Page 12 of 12 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. "