Prabhat Engineering Services (P) Limited, Bhubaneswar V. ITO,Ward-1(2), Bhubaneswar

ITA 112/CTK/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5986 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 21-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DILLIP KUMAR MOHANTYPK.SAHU
• Keywords: Unexplained cash credit; Income from undisclosed sources; Source of fund; Deemed to accrue or arise in india; Question of law; TDS; Set aside
• Section: 131; 68; 133(6); 208; 43; 13

Judgement Text

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI ARUN KHODPIA, AM आयकर अपीऱ सं./ITA No.112/CTK/2019 (नििाारण वषा / AY. :2014-2015) M/s Prabhat Engineering Services (P) Ltd., Plot No.1441, Opp. IOCC Petrol Pump, CRPF Square, Bhubaneswar Vs ITO, Ward-1(2), Bhubaneswar PAN No. : AAGCP 5328 P (अऩीलाथी /Appellant) .. (प्रत्यथी / Respondent) ननधाारिती की ओर से /Assessee by : Shri Dillip Kumar Mohanty/PK.Sahu,ARs िाजस्व की ओर से /Revenue by : Shri Abhay Kumar Rout,Sr.DR स ु नवाई की तािीख / Date of Hearing : 26/05/2022 घोषणा की तािीख/Date of Pronouncement : 18/08/2022 आदेश / O R D E R Per Arun Khodpia, AM: This is an appeal filed by the assessee against the order passed by the CIT(A)-1, Bhubaneswar, dated 20.02.2019, for the A.Y.2014-2015. 2. The assessee has raised the following grounds:- 1. That the assessment order dated 29.12.2016 passed by the Ld Assessing Officer & Order dated 20.02.2019 passed by CIT(Appeals)-I, Bhubaneswar are void ab initio, against the natural justice, unjustified, erroneous, arbitrary, contrary to facts, bad in law, without jurisdiction and/or in excess of jurisdiction and legally untenable. 2. For that the assessment as framed are entirely perverse on fact as well as erroneous in law. Thus the assessment as framed is liable to be quashed. 3. For that the addition of Rs. 2,70,000/- under the head unexplained share application money in the hands of the assessee company are not only illegal, arbitrary & do not pertake the character of income U/s. 68 of the I.T. Act, and hence liable to be deleted. ITA No.112/CTK/2019 2 4. For that only in absence of letters returned back and for reply have not been received, the addition of Rs. 39,61,162/- U/s. 41 (1) of the I.T. Act (the established sundry creditors) are illegal, arbitrary, unjustified and not sustainable on fact and law. 5. For that invoking the provision of Section 41 (1) of the I.T. Act, in respect of the continuing creditors for goods & services are illegal and unjustified & the addition made to the tune of Rs. 39,61,162/- are liable to be deleted/set aside. 6. For that the addition of Rs. 39,40,000/- as bogus unsecured loan on the facts and peculiar circumstances of the case are liable to be deleted. 7. For that disallowance of travelling expenses to the tune of Rs.15,42,426/-, though have been transacted through bank account are arbitrary, illegal, unjustified & liable to be deleted. 8. For that the disallowance and addition of Rs. 1,53,877/- under the head Advertisement expenses are based strongly on presumption and surmises, contrary to the submissions of the assessee and therefore are arbitrary, unjustified and not tenable in the eyes of law. Hence liable to be deleted. 9. For that the disallowance and addition of Rs. 1,39,013/- under the head sales promotion expenses are arbitrary, unjustified and not tenable in the eyes of law. Hence liable to be deleted. 10. For that the order of assessment is otherwise bad in law and liable to be quashed. 11. For that suitable case laws are cited at the time of hearing. 12. For that the assessee was denied the reasonable opportunity of being heard, thereby deprived from the benefit of natural justice. 13. For that the Ld. CIT (A) on fact and law has committed a grave error in confirming the addition under different heads in a routine manner only just following the reasons of the Ld. A.O. and as such in absence of any independent reason of confirming the various additions/ disallowances, the order of the 1st Appellate Authority suffers from serious infirmities and as such liable to be set aside. 14. That the appellant craves leave to add to supplement modify the grounds herein above before or at the time of hearing of the appeal. 15. For these grounds and other grounds if any that will be adduced at the time of hearing, it is prayed that the various additions/disallowances be deleted &/or any order/orders as your honour deems fit & proper be passed. ITA No.112/CTK/2019 3 3. Brief facts of the case are that there the assessee company is engaged in the business of imparting coaching and have taken franchise of “IAS Made Easy”. The said company is running business under the name and style “Prabhat Engineering Services (P) Ltd.”, Bhubaneswar for the F.Y.2013-2014 relevant to A.Y.2014-2015. The assessee filed its return of income electronically on 27.08.2015 declaring total income of Rs.19,40,340/-. Thereafter the AO completed the assessment u/s.143 (3) of the Act making various additions. 4. Against the assessment order, the assessee filed appeal before the CIT (A), but the same was dismissed. 5. Now, against the action of the Ld CIT(A) the assessee is in appeal before the Tribunal. We have considered the arguments of the parties ground wise to adjudicate the same as follows:- 6. Ground No. 1 & 2 First two grounds of the appeal of the assessee are legal and general in nature so needs no separate adjudication. 7. Ground No. 3 : Disallowance of Unexplained Share Application Money - Rs.2,70,000/- 8. Submission of the Ld AR on behalf of the assessee on this ground was that the assessee company has paid the applicant share holder Mr. Chhatoi salary of Rs. 3,00,000/- on 04.03.2014 out which a sum of Rs. 2,70,000/- was transferred to the company towards share application money. Ld AR has substantiated this fact by showing us bank statement ITA No.112/CTK/2019 4 of the company and the share holder both made available at Annexure “1” of the paper book. However, bank statement of Director of the assessee company, Mr. Subrat Kumar Chhatoi is showing a cash deposit of Rs.2,70,000/- on the same date i.e. 04.03.2014, hence the AO has linked this transaction with that cash deposit. Regarding cash deposited by the share applicant, Assessee Company has given justified explanations but not appreciated by the revenue authorities. In this matter AO relied and quoted findings of the Apex Court relevant for the present case, in the case of CIT Vs Lovely Exports Pvt. Ltd. reported in (2008) 299 ITR page -268(SC) that: "if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee." 9. Ld Sr. DR on behalf of revenue has relied on the order of the AO and CIT(A) on this issue. 10. We have heard the rival contentions, carefully perused the material available on records. From the bank statements of assessee company and the applicant share holder available on the records it is observed that the contention of the assessee are correct with respect to the payment made for share application money which was remitted through proper banking channel to the assessee company and source of the same is also explained, therefore the same cannot be treated as unexplained in the hands of assessee. Since revenue was not able to establish the fact that the cash deposited in the account of the share holder belongs to the ITA No.112/CTK/2019 5 assessee company, moreover the shareholder was possessing sufficient balance more than the cash deposited after payment of the amount of share application money, it cannot be said that the amount paid to the assessee company was the amount which was deposited in cash. In this context, the legal position affirmed by the Apex court in the case of Lovely Exports (supra) will be relevant, if any enquiry as per law needs to be initiated the same can be initiated on the share holder to explain the cash deposit, the same cannot be treated as unexplained in the hands of assessee company. No contrary argument, decision or facts were advanced by the revenue to take a different view on the same. Accordingly, this ground is decided in favour of the assessee. 11. Ground no 4 & 5: Addition on account of disallowance of Sundry Creditors of Rs. 39,61,162/- U/s. 41 (1) of the I.T. Act: 12. Ld AR of the assessee on this ground has submitted that the Ld AO has made this addition by applying provisions of section 41(1) of the IT Act. However the preconditions for making any addition under section 41(1) are misplaced in the present case. It is further submitted that as per section 41(1) claiming of deduction by the assessee is a pre requisite which is missing in the present case. Further, there is no remission or cessation of the liability as the creditors have been discharged as a future date. Ld AR relied on the following case laws: a) Dattatray Poultry Breeding Farm Pvt. Ltd. Vs. The Assistant Commissioner of Income Tax (2019) 415 ITR Page- 407 (Guj.) b) Commissioner of Income Tax, Calcutta Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR Page- 518 (SC) ITA No.112/CTK/2019 6 c) Commissioner of Income Tax-Ill Vs. Bhogilal Ramjibhai Atara (2014) 222 Taxman Page- 313(Guj.) d) The Commissioner of Income Tax and Ors. Vs. Alwares & Thomas (2017) 394 ITR Page- 647(Kar.) 13. Ld AR then submitted that the Ld revenue authorities have never questioned the books of accounts nor have doubted the expenses of the assessee company during the assessment proceedings, but have questioned the genuineness of the creditors merely on the ground that notice U/s 133(6) to some of the creditors could not be served. Assessee was cooperative during the assessment proceedings, have provided all the requisite information hence merely because the notice u/s 133(6) was un served addition u/s 41(1) was not called for. 14. Ld DR on the contrary has relied on the orders of revenue authorities and submitted that in case the addition cannot be made on the basis of facts u/s 41(1) the same should have been made u/s 68 of the act. 15. We have considered the submissions of the appellant and the respondent. Perused the documentary evidences produced, orders of the revenue authorities and judicial pronouncements quoted to support it’s contention by the assessee. 16. On perusal of various judicial pronouncement cited by the Ld AR, the relevant portions of observations / findings of the various higher courts are excerpt hereunder for better evaluation of the issue raised: 17. In the case of Dattatray Poultry Breeding Farm Pvt. Ltd. Vs. The ACIT, reported in (2019) 415 ITR 407 (Guj.), wherein provisions of ITA No.112/CTK/2019 7 section 41 are elaborately interpreted by the Apex court in the case of Sugali Sugar Works (P) Ltd. (supra) have observed as under:- 11. It may be noted that in the facts of the present case, the addition is sought to be made on the ground that there was cessation of trading liabilities under section 41(1) of the Act. Section 41(1), to the extent the same is relevant for the present purpose, reads as under: 41. Profits chargeable to tax.—(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first- mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year. Explanation 1.—For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) of the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. 12. The above provision has been interpreted by the Supreme Court in the case of Sugauli Sugar Works (P) Ltd. (supra), wherein the court has concurred with the reasoning adopted by a Full Bench of this court in the case of CIT v. Bharat Iron & Steel Industries [1993] 70 Taxman 353/199 ITR 67, and held thus: ITA No.112/CTK/2019 8 '9. One aspect of the matter has been completely ignored by the judgment of the Division Bench of the Bombay High Court. As pointed out already, the crucial words in the section require that the assessee has to obtain in cash or in any other manner some benefit. That part of the section has been omitted to be considered by the Division Bench of the Bombay High Court. The said words have been considered by a Full Bench of the Gujarat High Court in detail in CIT v. Bharat Iron & Steel Industries, [1993] 199 ITR 67 (Guj.). The following passages in the judgment bring out the reasoning of the Full Bench succinctly: "11. In our opinion, for considering the taxability of amount coming within the mischief of Section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in Section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income tax as income of that previous year. 12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading [1976] 103 ITR 312 (Guj), that the only meaning that can be attached to the words 'obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure' incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the legislature when it used the words 'has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past'. As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible." We are in agreement with the said reasoning.' 13. The court held that the principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt has been well settled. It was further held that if that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. ITA No.112/CTK/2019 9 14. In the facts of the present case, it is not even as if the assessee debtor has unilaterally made any entry in the books of account. Merely on the ground that a considerable time has elapsed since the debts were incurred and more particularly on the ground of genuineness of such debts, the Assessing Officer has passed the order under section 41(1) of the Act. There is no material whatsoever on record to show that there was cessation or remission of liability during the previous year relevant to assessment year 2010-11, namely the year under consideration. 15. From the findings recorded by the Assessing Officer as well as the Tribunal, it appears that the very genuineness of such entries has been doubted, inasmuch as the Assessing Officer has tried to verify the existence of such liabilities from the creditors, however, many were not found at the given address and some of them had categorically denied having any transaction with the assessee. In the opinion of this court, if the existence of such liabilities is doubted, the same could have been disallowed in the year in which it was claimed, or could have been treated as unexplained cash credit in the hands of the assessee under section 68 of the Act in the relevant assessment year, but the same cannot be taxed under section 41(1) of the Act, inasmuch as if the liability itself is not genuine, the question of remission or cessation thereof would not arise. 16. Section 41(1) of the Act can be applied, provided the following conditions are fulfilled: - In the assessment of any assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him; - any amount is obtained in respect of such loss or expenditure; or any benefit is obtained in respect of such trading liability by way of remission or cessation thereof; - such amount or benefit is obtained by the assessee; - such amount or benefit is obtained in a subsequent year; Thus, where a debt due from the assessee is foregone by the creditor in a later year, it can be taxed under section 41(1) of the Act in such later year when it was foregone. Section 41(1) of the Act, therefore, contemplates existence of a debt/liability and the remission or cessation thereof in the year under consideration. Therefore, for the purpose of taxing any income on account of remission or cessation of liability, the Assessing Officer has to establish that there was an existing liability and that there was remission or cessation of such liability in the previous year relevant to the assessment year in which such income is sought to be taxed. 17. In the facts of the present case, while the assessee has shown the trading liability in its books of account, no benefit has been obtained in respect of such trading liability by way of remission or cessation thereof; under the circumstances, the requirements of section 41(1) of the Act are not satisfied in the present case. ITA No.112/CTK/2019 10 Moreover, any such cessation or remission of liability has to be in the previous year relevant to the assessment year under consideration, in the facts of the present case, it is not the case of the Assessing Officer that the liabilities ceased to exist in the previous year relevant to the assessment year under consideration. In fact the Assessing Officer has doubted the very genuineness of such liabilities. Therefore, in the absence of any liability, the question of taxing any income on the ground that there was remission or cessation of such non-existent liability would not arise. 18. The Tribunal, in the impugned order, has held that the Assessing Officer was right to hold the financial year in question as the right year for taxability when the facts concurring the non- existence were unrevealed (sic. revealed/unraveled). Thus, the Tribunal has doubted the very existence of the trading liabilities. Thus, the reasoning adopted by the Tribunal is contrary to the provisions of section 41(1) of the Act, which can be invoked provided there is trading liability in existence and there is remission or cessation of such liability. If no trading liability exists, the question of invoking section 41(1) of the Act would not arise. 19. In the opinion of this court, the decision of this court in the case of Bhogilal Ramjibhai Atara (supra) would be squarely applicable to the facts of the present case, wherein the court held thus: "We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself is found to be non- genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed." ITA No.112/CTK/2019 11 18. CIT Vs Bhogilal Ramjibhai Atara, reported : (2014) 222 Taxmann.com 313 (Guj.), Held : “Section 41(1) would apply in a case where there has been remission or cessation of liability that too during the previous relevant to assessment year subject to the conditions contained in the statute being fulfilled. In this case, there was nothing on record to suggest that there was remission or cessation of liability during the relevant assessment year. Therefore, amount could not be added back as a demand income under section 41(1)”. 19. The Hon’ble Karnataka High Court in the case of Alwares & Thomas, (2017) 394 ITR 647 (Kar.) in paras 8 & 9 held as under :- 8. Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable. 9. In our view, even if we accept the contention of the Revenue that the party could not be traced and therefore debt could not be verified then also, by no stretch of imagination can it be held that it would satisfy the requirement of cessation of liability. In legal parlance, merely because the creditor could not be traced on the date when the verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, in our view, the conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case. 20. On a carefully perusal of the above decisions, the legal position led down by the Hon’ble Apex court and other Hon’ble high courts which is ITA No.112/CTK/2019 12 squarely applicable to the facts and circumstances of the present case, we found merit in the arguments of the Ld AR of the Assessee, while no opposing decision or fact has been induced in by the revenue to convince us to reach on a different view, thus, contentions of the assessee are satisfactory. We, therefore set aside the orders of the revenue authorities on this issue and ground no 4 & 5 of the appeal are decided in favour of the assessee. 21. Ground No. 6: Addition on account of bogus unsecured loan amount to Rs. 39,40,000/- 22. On this ground Ld. AR of the assessee in his written submission submitted as under :- 11. The Ld. Assessing Officer has added a sum of Rs. 39,40,000/- as Bogus Unsecured Loan citing non-service of departmental letters as reason. In this context the assessee humbly submits that the assessee had provided all the requisitioned details in respect of the loan providers which inter alia included Name, Address, PAN No., amount and mode of payment etc. before the Ld. A. O. as well as before the Commissioner Appeals as detailed in Para- 3 Annexure- III of the Memo of Appearance / Hazira filed before the CIT (A) at Page- 10 of the Paper Book- I. 12. Your Honour may appreciate that out of the addition of Rs. 39,40,000/-, Rs. 20,00,000/- has been received from Mrs. Prativa Kumar Chhatoi. The said loan has been extended through banking channels. Further a sum of Rs. 25,00,000/- was received in her bank as Loan, out of which Rs. 20,00,000/- was extended to the appellant company as loan. Bank Statement of Mrs. Prativa Chhatoi is provided as Annexure-II. 13. Similarly on perusal of the bank statement of Mr. Pravat Ku Mishra, it can be ascertained that the loan amount of Rs. 5,00,000/- has been extended out of the funds available with him. (Annexure-Ill) 14. In respect of the other Loan Creditors, the details as above were also produced such as (1) the identity of the creditor (2) the genuineness of the transaction, namely, it has been transmitted ITA No.112/CTK/2019 13 through banking or other indisputable channels (3) through confirmation letter. 15. Further, it has been observed in the Assessment Order that even though confirmation from the Loan creditors were filed, however, the parties were not produced. Whereas if, the Ld. AO. had any doubt about the creditor's worthiness of the loan creditor, the Ld. AO. could have investigate the creditor's worthiness of the lenders. However, the Ld. AO. has not brought any material evidences on record or doubted that the loan creditors are (a) benimidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources, it is the respectful submission of the appellant that, since the entire loan transaction have been effected through Bank, and in the absence of any independent investigation to this effect by the Ld. AO., the addition of Rs. 39,40,000/- only observing that the loan creditors were not produced, are liable to be deleted. 23. Ld AR further drew our attention to para 13 of the order of Hon’ble Apex Court in the case of CIT Vs. Orissa Corporation (P) Ltd. reported (1986)159ITR78(SC), wherein it is observed that: 13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable 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. 24. Ld AR further had shown us the submission on this issue before the CIT(A) at page 10 of the Paper Book 1, Unsecured Loan details and copies of the confirmation statements of the lenders placed in Paper Book 1 page 43 to 49. Ld AR also submitted the bank account of two of the lenders namely Mrs. Pravita Kumari Chatoi for loan amount of ITA No.112/CTK/2019 14 Rs.20,00,000/- and Mr. Pravat Ku Mishra for loan of Rs. 5,00,000/-, showing source of fund as explained in submissions above. Ld AR prayed that since all these evidences are submitted by the assessee to the authorities below, addition merely on the basis of non-service of departmental letters and observing that the loan creditors were not produced cannot be made and liable to be deleted. 25. Ld DR on the other hand has vehemently supported the orders of the authorities below and relied upon a case law of Hon’ble Calcutta High Court in the case of Percision Finance Pvt. Ltd dated 14.06.1993 reported (1994) 208 ITR 465 Cal. In the said judgment Ld DR drew our attention to para 5, which reads as under: 5. It appears from the order of the Commissioner (Appeals) that the ITO allowed opportunity to the assessee for about 7-½ years starting from 16-9-1978, and ending on 24-2-1986, to produce the relevant documents in support of the contentions that the loans were genuine. Those opportunities were not availed of. Nothing was produced before the Commissioner (Appeals). Enquiries were conducted through the inspector on different dates and it was found that either the files do not exist as per details given by the assessee or the records do not tally with the facts mentioned by the assessee, except in two cases where the records were available in respect of Mulchand Chabra and Somani Supply Syndicate Co. and in all other cases creditors were not even found at the addresses given by the appellant. Apart from having enquiries made by the inspectors, several letters were also issued to the assessee between 16-1-1982 and 24-2-1986, bringing to its notice that the loans could not be verified and adequate proof was required. At no stage have the appellant's representatives responded properly. Nowhere was the question of checking up the bank account raised. 26. We have heard the rival parties, perused materials available on record and gone through orders of the revenue authorities below. The Assessing Officer has made additions for unsecured loan received from various parties considering the fact that the assessee had not submitted ITA No.112/CTK/2019 15 any reply to the queries raised in this respect, also assessee failed to furnish any confirmation, income tax details or bank statement of the loan creditors. Since, the parties were not produced before the AO nor have confirmed the transactions, thus, the AO has concluded that the basic requirement of identity, genuineness and credit worthiness of the transactions is doubtful and not proved and the correctness and genuineness of the transactions cannot be relied upon. The Ld CIT(A) has accepted the observation of the AO and upheld the order of AO on this issue. 27. Now, this appeal is before us on this ground, therefore, in order to ascertain whether transactions of unsecured loans received from different parties are genuine transactions or not, one has to understand provisions of section 68 of the Act. The provisions of section 68 of the Act deals with cases where any sum found credited in books of account of the assessee for any previous year for which the assessee fails to establish identity, genuineness of transactions and creditworthiness of parties, then said sum found in the books of account of the assessee shall be treated as income of that year. Once initial burden of proving all three ingredients are discharged by the assessee, then burden shifts to the Revenue to prove otherwise that the said unsecured loans are unaccounted income of the assessee. 28. In the present case, all the transactions for receipt of the impugned unsecured loans are performed through banking channel. PAN numbers of all the parties (except for Late Mr. Harihar panda for a loan of Rs. ITA No.112/CTK/2019 16 60,000) are also quoted by the AO himself in the remark column of the statement made for this issue in the assessment order. Assesse has also made available bank statement of two parties for Rs. 25.00 Lac showing source of fund to the loan creditor, as discussed supra. Confirmations are also provided (copies available in paper book 1) for the loan creditors except from Late Mr. Harihar Panda who had passed away and hence the confirmation could not be obtained. Ld AO has not accepted the creditworthiness of the loan creditors purely based on their ITR figures or based on non filing of ITRs without establishing the fact against the assessee by enquiring further that whether the loan creditors are credit worthy or not. Therefore, we are of the considered view that the assessee has discharged its burden u/s. 68 of the Income Tax Act, 1961 by filing various details. Once an assessee discharged its burden, then burden shifts to Assessing Officer to prove otherwise that said transaction was nothing but undisclosed income of the assessee. In this case, the Assessing Officer has not brought on record any evidence to prove that said sum was undisclosed income of the assessee. Therefore, we are of the considered view that the Assessing Officer was completely erred in making additions towards unsecured loans received. We further noted that the Hon’ble Supreme Court in the case of CIT Vs. Lovely Exports (2008) 216 CTR 198 has clearly held that once initial burden of identity was proved, then the Assessing Officer is at liberty to proceed on the creditors in accordance with law, but said sum cannot be treated as unexplained credit of the assessee. A similar view has been expressed by ITA No.112/CTK/2019 17 the Hon’ble Supreme Court in the case of M/s. Steller Investments Ltd. 115 taxmann.com 99(SC). 29. On perusal of the case law relied upon by the learned DR in the case of in the case of Percision Finance pvt. Ltd (supra), wherein it was held that mere furnishing of particulars is not enough, it is also observed that mere payment by bank account is not sacrosanct nor can it make a non-genuine transaction genuine, but what is relevant is whether transactions are passed the test of three ingredients provided u/s.68 of the Act. In this case, it is not only transactions are routed through proper banking channels, but also other ingredients including identity and creditworthiness of parties has been satisfactorily explained. Therefore, we are of the considered view that findings of the case law relied upon by the learned DR is not applicable to facts of present case. 30. Thus, considering facts and circumstances of the case and also by following judicial precedents discussed hereinabove, we are of the considered view that assessee has discharged burden caste upon it u/s. 68 of the Act to prove unsecured loans received. The Assessing Officer as well as learned CIT(A) without appreciating the evidences submitted by assessee has simply made additions on the ground that said sum was undisclosed income of the assessee, which is not sustainable in the eyes of law. Hence, we set aside the order of learned CIT(A) and direct the Assessing Officer to delete additions made towards unsecured loans received by the assessee. In the result this ground of appeal of the assessee is allowed. ITA No.112/CTK/2019 18 Ground No. 7 : Addition for Travelling Expenses for Rs. 15,42,426/- 31. Ld AR of the assessee in its notes on the facts and submission has submitted as under: 16. The Ld. Authority has disallowed Rs. 15,42,326/- incurred by the assessee as travelling expense of the faculties incurred in absence the boarding pass. 17. In this respect, it is humbly submitted that the assessee is engaged in imparting education/coaching to the aspirant young, energetic, aggressive and dynamic students to prepare themselves for their higher studies, mostly in the field of engineering, Administrative services, Management Education etc. For imparting education/coaching the assessee engages various faculties across India to undertake classes. The travel arrangements in respect of such faculties are made by the appellant. For its convenience, the appellant has engaged M/s. Learning Age, in arranging Travel Programme of the Faculties and Staff. The detailed ledger of such expenses undertaken has already been provided during the course of adjudication, along with all the bills and vouchers. 18. The Ld. Assessing Officer has itself admitted in para 2 of the impugned Assessment Order that " ..... company appeared for hearing from time to time and furnished required documents/papers like IT Particulars, bank statements of share holders, copies of rent agreement, bills and voucher of expenses, ledger, name and address of creditor, debtor, loan and advances and copies of bank statements of company etc which were examined. The books of accounts were produced for test checking and the same were examined with reference to return of income and audited statement filed. The Bank account copies of the assessee "Company" have been studied and various transactions made therein have also been examined. " Thus, the appellant has duly verified the expenses by the submission of ledgers, banks statements and even the identification of the service provider and the same has been duly acknowledged by the department in its order. 19. Your Ld. Authority will appreciate that out of the total expense of Rs. 22,35,667/-, Rs. 21,87,533/- has been paid through cheques mostly to M/s. Learning Age and are duly routed through bank and Rs. 48,134/- only has been expended in cash. 20. Thus, as such all the supporting documents substantiating the travelling expenses were submitted during the course of ITA No.112/CTK/2019 19 assessment / 1st appeal proceedings. However, only due to the absence of the Boarding passes, Rs. 15,42,326/- was disallowed by the adjudicating authority. 21. In this regard, it is humbly submitted that in the course of adjudication, the income of the appellant as well as the expenses booked under the head Faculty Charges have never been questioned. Whereas only in the absence of boarding passes, a sum of Rs. 15,42,326/- have disallowed whimsically even though the identity and the details of M/s Learning Age with the PAN No. etc. here produced with the submission that they have independently provided service to the appellant during the impugned period. The genuine & bonafide of the transaction with M/s. Learning Age. 22. Thus, the entire addition on the ground of unavailability of boarding pass is unjust and is quash able on fact as well as law. 32. Ld DR on the contrary relied upon the orders of the revenue authorities. 33. We have considered the rival submissions, perused the order of the Ld AO and CIT(A) on this issue. It is noticed from the order of AO that Travelling done by the faculty members for Rs. 2,32,895/- was accepted and allowed by the Ld AO and upheld by The LD CIT(A), but the travelling done by the persons other then faculty members were disallowed on account of non production of boarding pass. Since, travelling expenses were incurred on the persons who are faculties and faculty Charges paid to them are also allowed by the Ld AO, these expenses cannot be disallowed only on the basis of non production of boarding passes. As requested by the Ld AO of the assessee to provide an opportunity to further substantiate the fact that the travelling was incidental and necessary for the business of the assessee, we are of the opinion that according to the principal of natural justice, this issue needs a further opportunity to the assessee and proper verification of the facts by the AO. ITA No.112/CTK/2019 20 We therefore set aside the order of the CIT(A) and restore this matter back to the files of the AO for re-adjudication of the same and to decide the same according to law. Needless to say that reasonable opportunity of being heard shall be provided to the assessee. Consequently, this ground of appeal is partly allowed to the assessee for statistical purposes. Ground No. 8 : Disallowance for Advertisement Expenses – Rs. 1,53,877/- 34. Ld AR of the assessee has submitted that: Addition on account of disallowance of Advertisement Expenses 23. The Ld. Authority has disallowed Rs. 1,53,877/- on ad hoc basis on advertisement expenses of Rs. 15,38,779/-. In the course of adjudication, the assessee provided the bills and vouchers substantiating the expense incurred in respect of advertisement. Apart from the bills and vouchers, the assessee also provided the name, address and amount of advertisement expense in respect of each party. 24. Further, the assessee submitted that the payment in respect of these parties have mostly been routed through the bank accounts and all of them are PAN holders. Thus to question the existence of the parties is beyond the rationale of law. 25. Further, the Ld. Assessing Officer, has in its observation made in Para 7.3 that no appropriate documents like confirmation letter, bank statements, copy of returns etc were provided and hence the expenses are not verifiable. However, the said observation is in contradiction to the observation made by the Assessing Officer in para 2 of the Assessment order, whereby it has been mentioned that " ..... company appeared for hearing from time to time and furnished required documents/papers like IT Particulars, bank statements of share holders, copies of rent agreement, bills and voucher of expenses, ledger, name and address of creditor, debtor, loan and advances and copies of bank statements of company etc which were examined. The books of accounts were produced for test checking and the same were examined with reference to return of income and audited statement filed. The Bank account copies of the assessee "Company" have been studied and various transactions made therein have also been examined." 26. Thus, the observation of the Ld. Assessing officer are contradictory to each other Further, the Ld. CIT (A) in its order in ITA No.112/CTK/2019 21 para 8 has observed that" Since the AO could not verify the balance expenses due to non-compliance of the parties. the AO could not verify the balance expenses due to non- compliance of the parties ..... “. Thus, it is apparent that the above addition has been made not due to the non-compliance of the appellant but the parties. Thus, in the event where the books of accounts of the appellant are audited and are verifiable and transparent, the disallowance of expense due to the non- compliance of the parties are beyond the rationality of law. 27. Further, the Ld. ITAT Pune, in the case of The Assistant Commissioner of Income Tax, Circle-8 Vs. Atlas Copco (India) Ltd., reported in MANU/IP/0214/2021 (ITAT Pune) dated 01/11/2021 has held that " ... Admittedly, the appellant had filed the primary details such as name, address, invoice, payment made etc. However, the assessee could not furnish the confirmations from payees and for want of the confirmations, Assessing Officer made disallowance. The Id.CIT(A) following the decision of his order in assessee's own case in earlier years has deleted the addition. From the material on record, it is clear that the respondent / assessee had discharged the onus cast upon it by filing the primary details. Mere inability to furnish the confirmation letters from the recipients cannot be the reason to disallow the commission expenditure without causing any further enquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure.” 28. Further, Your Honour will appreciate the fact that the appellant has duly deducted TDS (wherever applicable) and submitted to the credit of the Government Treasury against respective PAN numbers hence, the contention that the genuineness could not be verified is erroneous and arbitrary. 29. Further adhoc disallowances without any scientific backing has been quashed off by various adjudicating authorities. 30. Thus, merely in the absence of confirmation from the recipients, the addition of Rs, 1,53,877/- on adhoc basis is liable to be deleted. Reliance placed in a) TUV India Pvt. Ltd. Vs. DCIT015(3)(1 ) (2019) 75 ITR (Trib.) Page- 364 (Mumbai) 35. Ld DR on the other had relied on the orders of the revenue authorities. 36. We have heard the rival parties, perused the material available on records. Admittedly the assessee has complied with the all the queries ITA No.112/CTK/2019 22 raised by the AO and submitted documents/papers like IT Particulars, bank statements of share holders, copies of rent agreement, bills and voucher of expenses, ledger, name and address of creditor, debtor, loan and advances and copies of bank statements of company etc which were examined by the AO. However, the AO had further observed that the ledger copies submitted by the assessee are not properly vouched also no confirmation from the parties could be furnished by the asseseee, therefore, being the expenses are not verifiable made an adhoc addition of 10% of the total expenses incurred under the head Advertisement. 37. In this respect finding of the coordinate bench of ITAT Pune relied upon by the Ld AR of the assessee is relevant, in the case of The Assistant Commissioner of Income Tax, Circle-8 Vs. Atlas Copco (India) Ltd. (supra), wherein it has held that, “when the assessee appellant had filed the primary details such as name, address, invoice, payment made etc. However, the assessee could not furnish the confirmations from payees and for want of the confirmations. It is clear that the respondent / assessee had discharged the onus cast upon it by filing the primary details. Mere inability to furnish the confirmation letters from the recipients cannot be the reason to disallow the commission expenditure without causing any further enquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure.” 38. Respectfully following the order of coordinate bench of the ITAT, Pune, as discussed above, addition of 10% made on the assessee was not justifiable and too harsh. However, in the present case because the ITA No.112/CTK/2019 23 assessee had not maintained the books of accounts properly, was able to provide primary details but not appropriate for satisfactory verification by the AO, we find it reasonable to disallow the advertisement expenses to the tune of 5%. Therefore, Order of the Ld CIT(A) on this ground therefore set aside and Ld AO is directed to make this disallowance at 5%. Consequently, this ground of appeal is partly allowed for statistical purposes. Ground No. 9 : Disallowance for Sales Promotion Expenses – Rs. 1,39,013/- 39. Ld AR of the assessee submitted as under:- Addition on account of disallowance of Sales Promotion Expense 31. The Ld. Authority has disallowed Rs. 1,39,013/- on ad hoc basis towards "Sales Promotion". In this regard the assessee humbly submits that it had submitted all the details of the parties which inter alia included name and address for the parties along with amount, each party-wise. Apart from the details the assessee also submitted the various bills and vouchers in this respect. 32. However without considering the facts of the case, the Ld. Authority added Rs. 1,39,013/- on adhoc basis which is arbitrary and bad in law. Your Ld. Authority will appreciate that the appellant is a Company and maintains its books of accounts as per Companies Act, 2013. Its books of accounts are periodically audited and for the impugned period, the auditors have issued unqualified audit report. The books of accounts at no pint were rejected by the adjudicating authority. Thus, when the books of accounts of the appellant are audited without any qualification, making any addition on adhoc basis is without the sanction of law. 33. Further, the Ld. Assessing Officer has observed that "The onus lies with the assessee to prove the genuineness of any transaction that are being credited in its books of accounts". In this regard, it is humbly submitted that the appellant has undertaken every such recourse to establish the genuineness of the expenses undertaken and the Ld. Department has also confirmed the same in its Assessment Order (Refer Para 31 of this submission). However in the absence of confirmation from the party have made adhoc addition of Rs. 1,39,013. In this regard the assessee pleads that no ITA No.112/CTK/2019 24 adhoc addition can be made merely in the absence of confirmation from the party and reiterates the submission in para 30 of this submission. 34. Further, on consideration of the facts of the case and the corresponding law in force, your Honour will appreciate that the entire adjudication has been concluded by mis-appreciation of facts and has made additions merely on the basis of non-confirmations by some of the parties. The Ld. Authorities at no point of time have disputed the books of accounts of the appellant, no defects have been pointed out in the Books, it is not the case of the 'forums below that the appellant has claimed bogus expenses, no enquiries were conducted independently by both i.e. Ld. A.O as well as CIT (A) whereas have confirmed the cooperation of the appellant in providing the requisitioned documents etc. Thus, the conclusion of the Ld. CIT (A) that the A.O. could not verify the balance expenses due to non compliance of the parties & hence 10% ad hoc disallowance is arbitrary not sustainable on facts & law. 35. Thus, based on the facts, and submission as above, the addition of Rs.1,39,013/- is liable to be quashed off. 40. Ld Dr on the contrary relied on the orders of revenue authorities below. 41. We have considered the rival contentions, perused the material available on record. In this issue genuineness of the expenses was not questioned by the Ld AO, only an adhoc disallowance was made in absence of the confirmation letters from the parties. The assessee has admittedly have submitted all the necessary and primary documents in compliance of the queries by AO, apart from confirmation from the parties. Therefore, under this ground also we are of the considered opinion that 10% disallowance of the expense would not be reasonable and justified. Thus, as agreed, it would be appropriate to disallow the sales promotion expenses by 5% on account of improper accounting by the assessee. Accordingly, Order of the Ld CIT (A) on this ground is set aside and Ld ITA No.112/CTK/2019 25 AO is directed to make this disallowance at 5%. As a result, this ground of appeal is partly allowed for statistical purposes. 42. In the result, appeal filed by the assessee is partly allowed. Order pronounced under Rule 34(4) of I.T.A.T. Rules, 1963 on 18/08/2022 Sd/- (C.M.GARG) Sd/- (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनाांक Dated 18/08/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : आदेशाि ु सार/ BY ORDER, (Assistant Registrar) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack 1. अऩीलाथी / The Appellant- 2. प्रत्यथी / The Respondent- 3. आयकि आय ु क्त(अऩील) / The CIT(A), 4. आयकि आय ु क्त / CIT 5. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, Cuttack 6. गार्ा पाईल / Guard file. सत्यावऩत प्रनत //True Copy//