VIRESHKUMAR P. NAIK, MUMBAI V. ITO 17(3)(5), MUMBAI

ITA 1272/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6769 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Unexplained cash credit; Business expenditure
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1272/MUM/2017 : A.Y : 2012 - 13 VIRESHKUMAR P. NAIK 2/2, BHARAT CHAMBERS, 52/C, BARODA STREET, MUMBAI 400 003. (APPELLANT) PAN : AAEPN8174G VS. ITO - 17(3)(5), MUMBAI (RESPONDENT) APPELLANT BY : SHRI BHUPENDRA SHAH RESPONDENT BY : MS. N. HEMALATHA DATE OF HEARING : 20/04/2018 DATE OF PRONOUNCEMENT : 27 /06/2018 O R D E R THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 28 , MUMBAI DATED 05.12.2016 PERTAINING TO ASSESSMENT YEAR S 2012 - 13 , WHICH IN TURN HA VE ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER, MUMBAI, DATED 25.03.2015 U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT TH E ACT). 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - [A] GROUNDS OF APPEAL: 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN MAKING AND THE COMMISSIONER OF INCOME TAX (A) ERRED IN 2 ITA NO. 1272/MUM/2017 VIRESHKUMAR P. NAIK CONFIRMING AN ADDITION OF RS. 25,95,000/ - AS UNEXPLAINED CASH CREDIT U/S 68 THEREBY DISREGARDING THE FA CT THAT ONCE THE APPELLANT PROVED THE IDENTITY OF LOAN CREDITORS BEYOND DISPUTE THE SAME COULD NOT BE ADDED IN THE HANDS OF THE APPELLANT. 2. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN ADDING AND THE COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING A DISALLOWANCE OF RS. 25,000/ - CLAIMED BY THE APPELLANT UNDER THE HEAD INTEREST ON UNSECURED LOAN AS UNEXPLAINED CASH CREDIT U/S 68. 3. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNE D COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING DISALLOWANCE OF RS.82,953/ - @ 10% OUT OF TOTAL BUSINESS EXPENDITURE AMOUNTING TO RS.8,29,597/ - BY HOLDING ALLEGED PERSONAL ELEMENT IN SUCH EXPENSES ON AN ARBITRARY BASIS IN SPITE OF THE FACT THAT THE SAM E ARE SUBJECT TO TAX AUDIT AND ARE ENTIRELY GENUINE. 4. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER WRONGLY INITIATED PENALTY U/S 271(1)(C) AND ALSO WRONGLY CHARGED INTEREST U/S 234A,B & C. [B] RELIEF PRAYED: 1) TO DELETE THE ADDITION OF RS. 25,95,000/ - MADE IN RESPECT OF VARIOUS LOANS RECEIVED BY THE APPELLANT AS UNEXPLAINED CASH CREDIT U/S 68. 2) TO DELETE DISALLOWANCE OF INTEREST OF RS. 25,000/ - U/S 68 AS UNEXPLAINED CASH CREDIT. 3) TO DELETE DISALLOWANC E OF RS. 82,953/ - @ 10% OF TOTAL EXPENSES AMOUNTING TO RS. 8,29,592/ - BEING ALLEGED PERSONAL ELEMENT IN SUCH EXPENSES. 4) TO DELETE INTEREST CHARGED U/S 234 AND INITIATION OF PENALTY U/S 271(1) (C). 3. IN THIS APPEAL, THE ASSESSEE HAS RAISED THREE ISSUES, WHICH I SHALL DEAL IN SERIATIM. FIRSTLY, THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE ACTION OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.25,95,000/ - AS UNEXPLAINED CASH 3 ITA NO. 1272/MUM/2017 VIRESHKUMAR P. NAIK CREDITS U/S 68 OF THE ACT. THE SECOND GRIEVANCE IS AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.25,000/ - REPRESENTING INTEREST ON UNSECURED LOANS TREATED AS UNEXPLAINED U/S 68 OF THE ACT. THIRDLY, THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.82,953/ - BEING AD HOC DISALLOWANCE OUT OF TOTAL BUSINESS EXPENSE CLAIM ED OF RS.8,29,597/ - . 4. THE APPELLANT BEFORE ME IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURING OF BATTERY - GLASS - APERTURE INSTRUMENTS CAL LED BATTERY HYDROMETER WHICH IS USED TO CHECK THE GRAVITY OF THE BATTERIES. THE BUSINESS IS CARRIED ON IN THE NAME AND STYLE OF M/S. THIMSONS INSTRUMENTS (INDIA). FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.15,44,200/ - AND IN THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD SHOWN IN THE BALANCE - SHEET UNSECURED LOANS AMOUNTING TO RS.89,14,979/ - FROM 28 LOAN CREDITORS. ON BEING ASKED TO FILE LOAN CONFIRMATIO NS, ASSESSEE FURNISHED THE SAME AND IT WAS NOTICED THAT FROM 9 PARTIES, ASSESSEE HAD RECEIVED LOAN IN CASH OF AMOUNTS BELOW RS.20,000/ - WHICH TOTALLED TO RS.1,50,000/ - . FURTHER, THE ASSESSING OFFICER NOTED THAT FROM 8 CONCERNS, THE VERIFICATION EXERCISE U /S 133(6) OF THE ACT REVEALED THAT ASSESSEE HAD RECEIVED LOANS BY CHEQUE AMOUNTING TO RS.25,95,000/ - . SUCH DETAILS HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 7 OF THE ASSESSMENT ORDER. IN PARA 7.1, THE ASSESSING OFFICER NOTES THAT FROM A PERUS AL OF THE BANK STATEMENTS FILED BY THE CREDITORS ALONGWITH THEIR CONFIRMATIONS, IT IS SEEN THAT IN MOST OF THE CASES CASH OR CHEQUES WERE DEPOSITED IN THEIR ACCOUNT BEFORE ISSUANCE OF CHEQUES TO THE ASSESSEE TOWARDS THE LOANS. ON THE BASIS OF THE SAID OBS ERVATION ASSESSEE WAS SHOW - CAUSED AS TO WHY THE LOAN AMOUNT BE NOT 4 ITA NO. 1272/MUM/2017 VIRESHKUMAR P. NAIK TREATED AS UNEXPLAINED WITHIN THE MEANING OF SEC. 68 OF THE ACT. THE STAND OF THE ASSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) HAS BEEN BASED ON THE CONFIRMATIONS I SSUED BY THE CREDITORS WHEREBY COMPLETE PARTICULARS WERE FURNISHED. WITH REGARD TO DEPOSIT IN THE BANK ACCOUNT OF THE CREDITORS PRIOR TO ADVANCING OF LOANS, ASSESSEE EXPLAINED THAT HE WAS INFORMED BY THE CREDITORS THAT PROCEEDS OF AGRICULTURAL INCOME WERE RECEIVED IN CASH WHICH WAS USED TO MAKE THE DEPOSITS IN THEIR BANK ACCOUNTS FROM TIME TO TIME. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION FILED BY THE ASSESSEE AND HE DOUBTED THE CREDITWORTHINESS OF THE CREDITORS FOR THE REASON THAT IN MOST OF THE CASES FUNDS WERE EITHER TRANSFERRED FROM SOME OTHER BANK ACCOUNT OR CASH DEPOSITED IMMEDIATELY BEFORE ISSUING OF CHEQUES TO THE ASSESSEE. SO FAR AS THE CASH LOANS AGGREGATING TO RS.1,50,000/ - ARE CONCERNED, THE ASSESSING OFFICER TREATED IT AS UNEXPLAINED IN THE ABSENCE OF ANY PROOF OF IDENTITY OR CREDITWORTHINESS OF THE CREDITORS. THUS, AN ADDITION OF RS.25,95,000/ - WAS MADE U/S 68 OF T HE ACT. THE SAID ADDITION HAS ALSO BEEN SUSTAINED BY THE CIT(A) FOR THE SAME REASON AS TAKEN BY THE ASSESSING OFFICER. 5. BEFORE ME, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT THE ADDITION HAS BEEN MADE ON MERE SURMISES AND C ONJECTURES AND THERE IS NO MATERIAL TO TREAT THE CREDITS AS UNEXPLAINED IN THE HANDS OF THE ASSESSEE. MY ATTENTION WAS DRAWN TO THE PAPER BOOK WHEREIN RELEVANT CONFIRMATIONS FROM ALL THE CREDITORS IN DISPUTE HAVE BEEN PLACED. 6. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS DEFENDED THE ORDERS OF THE AUTHORITIES BELOW BY PLACING RELIANCE THEREON. 5 ITA NO. 1272/MUM/2017 VIRESHKUMAR P. NAIK 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. INSOFAR AS THE LOANS RAISED BY THE ASSESSEE IN CASH OF RS.1,50,000/ - FROM 9 PARTIES, AS D ETAILED IN PARA 7 OF THE ASSESSMENT ORDER, IS CONCERNED, CLEARLY THERE IS NO SUBSTANTIATION OF EITHER THEIR IDENTITY OR CREDITWORTHINESS AND, THEREFORE, THE SAID ADDITION IS HEREBY AFFIRMED. 8. INSOFAR AS THE UNSECURED LOANS RECEIVED FROM 8 PARTIES AMOUN TING TO RS.24,45,000/ - (AS DETAILED IN PARA 7) IS CONCERNED, IN THIS CONTEXT, THE RELEVANT CONFIRMATIONS HAVE BEEN PLACED AT PAGES 150 TO 159 OF THE PAPER BOOK. A PERUSAL OF THE CONFIRMATIONS REVEAL THAT EACH OF THE CREDITOR S HA S CONFIRMED THEIR ACCOUNT S TATEMENT AND PROVIDED THEIR INCOME - TAX PAN PARTICULARS AS ALSO THEIR ADDRESSES. THE DISCUSSION IN THE ASSESSMENT ORDER ALSO REVEALS THAT THE CREDITORS FURNISHED THEIR BANK STATEMENTS. THE ASSESSING OFFICER FURTHER RECORDS THAT IN ONE CASE, COPY OF THE IN COME - TAX RETURN HAS ALSO BEEN FURNISHED. BE THAT AS IT MAY, THE NON - SATISFACTION OF THE ASSESSING OFFICER ABOUT THE CREDITWORTHINESS OF THE CREDITORS IS BASED ON HIS OWN SUMMATION OR ANALYSIS OF THE RESPECTIVE BANK ACCOUNT S AND IS NOT BASED ON ANY CORROBO RATIVE MATERIAL. THERE IS NOTHING TO SUGGEST THAT THE VERIFICATION EXERCISE CARRIED OUT BY THE ASSESSING OFFICER U/S 133(6) OF THE ACT CAME TO REVEAL ANY MATERIAL WHICH DEMOLISHES THE CONFIRMATION OF THE LOANS GIVEN BY THE CREDITORS, ESPECIALLY CONSIDERIN G THAT ALL OF THEM WERE INCOME - TAX PAYEES AND THE LOANS HAVE BEEN ADVANCED THROUGH BANKING CHANNELS. IN MY VIEW, THE ENTIRE ADDITION HAS BEEN MADE BY MERELY DISBELIEVING THE CONFIRMATIONS AND OTHER EXPLANATION FURNISHED BY THE ASSESSEE, WHICH IS UNTENABLE . THEREFORE, SO FAR AS THE ADDITION OF RS.24,45,000/ - U/S 68 OF THE ACT IS CONCERNED, THE SAME IS HEREBY DIRECTED TO BE DELETED. 6 ITA NO. 1272/MUM/2017 VIRESHKUMAR P. NAIK 9. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLOWANCE OF INTEREST CORRESPONDING TO THE LOANS TREATED AS UNEXPLAINED U/ S 68 OF THE ACT. SINCE I HAVE ALLOWED SUBSTANTIAL RELIEF ON THAT POINT IN THE EARLIER PARAS, THE ASSESSING OFFICER IS DIRECTED TO ALLOW APPROPRIATE CORRESPONDING RELIEF OUT OF THE INTEREST EXPENDITURE ALSO. THUS, ON THIS ASPECT, ASSESSEE PARTLY SUCCEEDS. 10. THE THIRD GROUND OF APPEAL IS AGAINST AN AD HOC DISALLOWANCE OF 10% OUT OF BUSINESS EXPENDITURE FOR PERSONAL ELEMENT. IN THIS CONTEXT, I FIND THAT NO SPECIFIC ARGUMENTS HAVE BEEN MADE AND, THEREFORE, THE SAID ADDITION IS HEREBY UPHELD. THUS, ON THI S ASPECT, ASSESSEE FAILS. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 7 T H JUNE, 2018. SD/ - (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 2 7 T H JUNE , 201 8 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, SMC BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI