Shri Ashok B Panchani, Surat V. Income Tax Officer Ward 3(3)(1), Surat

ITA 142/SRT/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2116 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 25-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Unexplained cash credit; Gift; Business income; Corroborative evidences
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No.142/SRT/2017 (Ǔनधा[रणवष[ / Assessment Years: (2012-13) (Physical Court Hearing) Ashok B. Panchani, Prop. Rajvi Construction and Maruti Creation, 37, Swati Society, Opp. New Chowpaty, Chikuwadi, Varachha Road, Surat. Vs. The ITO, Ward-3(3)(1), Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ADXPP9167H (Assessee) (Respondent) Assessee by : Shri Sapnesh Sheth, CA Revenue by : Shri Abhishek Gautam, Sr. DR स ु नवाईकȧतारȣख/ Date of Hearing : 06/05/2022 घोषणाकȧतारȣख/Date of Pronouncement : 19/07/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS/3/370/2015-16 dated 23.08.2017, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 19.03.2015 2. Grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.21,00,000/- as unexplained cash credit on account of unsecured loan of Rs.18,00,000/- and gift received of Rs.3,00,000/-. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in making disallowance of Rs.13,56,600/- out of labour expenses. Page | 2 142/SRT/2017/AY.2012-13 Ashok B. Panchani 3. It is therefore prayed that above additions made by assessing officer and confirmed by Commissioner of Income-Tax (Appeals) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. We shall take ground No.1 which relates to addition of Rs.21,00,000/- on account of unexplained cash credit. So far as this ground of appeal is concerned, the relevant material facts are like this. The assessee before us is an Individual. During the year under consideration, the assessee was engaged in the business of construction in the name and style of his proprietary concern viz. Rajvi Construction. Further, the assessee also engaged in the business of embroidery job work in the name and style of his proprietary concern viz. Maruti Creation. Apart from these, the assessee was a partner in two partnership firms viz. Shreenathji Developers and Om Developers. In the Financial Year 2011-12, the assessee has purchased House Property at A/9, 11 and 12, Gajanan Society, Punagam and land situated at Varachha with other co-owners wherein his share in the same were Rs.2,64,220/- and Rs.1,65,863/- respectively. The assessing officer observed that during the year under consideration, the assessee has shown to have received unsecured loan from the following parties: Sr. No. Name of the lenders S/Shri Amount of loan (Rs.) Interest paid 1 Hasmukhbhai D. Panchani 700000/- -- 2 Smt. Ilaben A. Panchani 300000/- 3740/- 3 M/s. Avadh onstruction 1800000/- -- Total 2800000/- -- The assessee was requested to furnish the complete details with respect to the lenders of the unsecured loans. Therefore, the assessing officer issued show cause notice dated 24.02.2015 to explain the transaction. In response, the assessee submitted written submission on 04.03.2015 to the assessing officer. Having gone through the written submission of the assessee, the assessing officer observed that assessee has failed to produce the details with respect to the unsecured loans with respect to M/s Avadh Construction and the gift received. To allow the claim of the assessee as genuine, the following conditions are to be fulfilled: (1) Identity of the lender Page | 3 142/SRT/2017/AY.2012-13 Ashok B. Panchani (2) Genuineness of the lender (3) Creditworthiness of the lender Therefore, the assessing officer observed that assessee is solely responsible to disclose the true and correct income earned by him during the year under consideration. Further, the assessee in response to the show cause has accepted that he failed to produce the details with respect to Avadh Construction. So, in absence of any explanation / details, the Unsecured loan shown as outstanding claimed to have received from Avadh Construction amounting to Rs.18,00,000/- was treated as unexplained in the hands of the assessee and added to the total income of the assessee. 4. Further, the assessee has received gift of Rs.3,00,000/- during the year under consideration from Shri Dhirubhai Bhimjibhai Malani. The assessee has simply furnished gift deed in this respect and nothing else. In spite of ample opportunities provided, the assessee failed to furnish any explanation/details with respect to the gift received from Shri Dhirubhai Bhimjibhai Malani. So, in absence of any explanation/details, the gift claimed to have been received from Shri Dhirubhai Bhimjibhai Malani amounting to Rs.30,00,000/- was treated by AO as unexplained in the hands of the assessee and added to the total income of the assessee. So, the total disallowance of unexplained credits in the hands of the assessee at Rs.21,00,000/- [Rs.18,00,000/- on account of unsecured loans + Rs.3,00,000/- on account of unexplained gift] was added to the total income of the assessee. 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer. 6. Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal before us. 7. Shri Sapnesh Sheth, Learned Counsel for the assessee, submitted that during the assessment stage, assessee has submitted the relevant bank statement and copy of confirmation of balance of M/s. Avadh Construction and copy for agreement for Page | 4 142/SRT/2017/AY.2012-13 Ashok B. Panchani sale of machinery, based on these evidences, the ld Counsel claimed that addition of Rs.18,00,000/- may be deleted. In respect of gift to the tune of Rs.3,00,000/-, the Ld. Counsel has submitted before the Bench, the gift deed and acknowledgement of return of income, profit and loss account, capital account and Balance sheet of Dhirubhai Bhimjibhai Malani for AY.2012-13. Therefore Ld. Counsel contended that assessee has proved the genuineness of the gift and hence no addition should be made. 8. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 9. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. The ld CIT(A) observed that non- furnishing of details of lender before the AO, during assessment stage creates suspicion regarding the genuineness of the transaction. The explanation that lender was not co-operative is not acceptable because normally, a person who has invested or advanced such a high amount always co - operate as he has to protect his stake. The ld CIT(A) further observed that nature of the amount received i.e. whether unsecured loan or advanced for purchase of Plant and Machinery is immaterial. What was required by the appellant was to file confirmations, copy of bank account of the lenders, ITRs, audit report and balance sheet to show that said loan is reflected in the bank statements as well as financial statements of the lender. The assessee has filed copy of bank account of the lender alongwith confirmations. However, assessee has failed to file the Income Tax Return and the Balance sheet, profit and loss account and audit report. We note that Income Tax Return, and balance sheet should show that said loan is reflected in the bank statements as well as financial statements of the lender. Therefore, we are of the view that unsecured loan shown as outstanding claimed to have received from Avadh Construction amounting to Rs.18,00,000/- has not been explained by the assessee properly. Page | 5 142/SRT/2017/AY.2012-13 Ashok B. Panchani Therefore, we are of the view that one more opportunity should be given to the assessee to produce Income Tax Return and the Balance sheet, profit and loss account and audit report before assessing officer and should demonstrate that said loan is getting reflected in the Balance Sheet. Hence, we remit this issue back to the file of the assessing officer to adjudicate afresh in accordance with law. In respect of gift amounting to Rs.3,00,000/-, we note that assessee submitted following evidences before the Bench, which is reproduced below: (i) Gift deed with regard to gift received from Dhirubhai Bhimjibhai Malani (vide paper book page no.26 to 29) (ii) Acknowledgement of Return of Income along with Computation of Total Income for AY. 2012-13 (vide paper book page no.30 to 32) (iii) Profit and Loss A/c., Capital A/c & Balance Sheet of Dhirubhai Bhimjibhai Malani (vide paper book page no.33) (iv) Exhibit-1 forming part of Form No.3CD [M/s. Rajvi Construction] indicating the transaction with Dhirubhai Bhimjibhai Malani (vide paper book page no.34) We note that assessee has produced sufficient evidence to prove the genuineness of the gift and identity and capacity of doner therefore we delete the addition of Rs.3,00,000/- 10. In the result, ground No.1 raised by the assessee is partly allowed for statistical purposes. 11. Coming to ground No.2 raised by the assessee, which relates to addition of Rs.13,56,600/- on account of labour expenses. Succinct facts qua ground No.2 are that during the assessment proceedings, the assessee had furnished the bills and vouchers to the tune of Rs.1,82,110/- only for labour expenses but failed to furnish the balance bills/vouchers to support his total claim of labour expenses of Rs.l5,38,710/-, as claimed in the Profit & Loss account with respect to Maruti Creation. Even after repeated requests and ample opportunities the assessee failed to Page | 6 142/SRT/2017/AY.2012-13 Ashok B. Panchani furnish the bills / vouchers in this regard. Therefore assessing officer observed that as per the provision of section 37(1) of the Act, any expenditure expended wholly and exclusively for the business purpose of the business shall be allowed in the computation of business income however, the assessee has failed to produce bills and vouchers for the difference of the Labour expenses amounting to Rs.13,56,600/- [Rs.15,38,710/- - Rs.1,82,710/-], hence, assessing officer disallowed labour expenses to the tune of Rs.13,56,600/- . 12. On appeal, ld CIT(A) confirmed the action of the assessing officer, therefore assessee is in appeal before us. Learned Counsel for the assessee submitted before us that in respect of labour expenses, the assessee submitted audited profit and loss account, balance sheet for AY.2012-13 and Form No.3CD. Therefore, the claim of the assessee should be allowed. 13. On the other hand, Ld. DR for the Revenue submitted that assessee has not produced bills/vouchers and other supporting evidences to show that assessee has incurred labour expenses. With help of profit and loss account, balance sheet, the genuineness of labour expenses cannot be examined. 14. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We find merit in the submission of ld DR for the Revenue, as he rightly pointed out that assessee has not produced bills/vouchers and other supporting evidences to show that labour expenses have incurred. If the expenses are shown in profit and loss account, without evidences such as bills/vouchers, the said labour expenses should be disallowed, as we aware that purpose of scrutiny assessment under section 143(3) is to examine the labour expenses by assessing officer with help of evidences such as bills, vouchers, payment by cash or by cheque etc. However, assessee has failed to produce these evidences. Page | 7 142/SRT/2017/AY.2012-13 Ashok B. Panchani Thus, we note that assessee did not submit bills/vouchers neither before the Assessing Officer nor before the Ld. CIT(A). The assessee has also not submitted any copy of the bank statements to explain whether the labour expenses have been paid through bank account or by way of cash. In absence of bills and vouchers and moreover it is not certain whether the payment has been made through banking channel or by way of cash, therefore in these circumstances the genuineness of these expenses have not been proved by the assessee. However, we note that assessee has shown income from revenue from the embroidery work at Rs.68,14,520/- against which he has claimed labour charges paid at Rs.15,38,710/- which works out of Rs.22.58%. So, the ld Counsel requested that since it is not possible to carry out job work activity, without payment of labour charges. Therefore, we are of the view that a reasonable amount may be allowed as labour, charges. We note that assessing officer disallowed labour expenses to the tune of Rs.13,56,600/-, and in the light of the discussions that have preceded and for the reasons alluded that assessee has shown job work income in his profit and loss account, considering these fact, we are of the view that an amount of Rs.6,00,000/- may be allowed. Hence, balance addition of Rs.7,56,600/- ( Rs.13,56,600- Rs.6,00,000) is hereby confirmed. 15. In the result, ground No.2 raised by the assessee is partly allowed. 16. In combined result, assessee’s appeal is partly allowed for statistical purposes. Order is pronounced in the open court on 19/07/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat / Ǒदनांक/ Date: 19/07/2022 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT Page | 8 142/SRT/2017/AY.2012-13 Ashok B. Panchani 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat