Gauttambhai N. Nagarsheth, Ahmedabad V. The ITO, ward-3(1)(1), Ahmedabad

ITA 1470/AHD/2019

AI Insights

The case revolves around the appeal by Gauttambhai N. Nagarsheth against the order of the CIT(A) which confirmed the additions and disallowances made by the Assessing Officer under various sections including Section 68 for unexplained cash credits and disallowances related to interest payments. The primary contention was whether the provisions of Section 68 could be applied in the absence of maintained books of accounts. The Tribunal examined the submissions, the legal provisions, and precedents, ultimately deciding in favor of the assessee by allowing the appeal and deleting the contested additions and disallowances.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299923 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 22-09-2019
• Other Referred Cases: Babbal Bhatia vs. ITO, ITO vs. Kamal Kumar Mishra, Smt. Manasi Mahendra Pitkar vs. ITO, Mehul V. Vyas vs. ITO, Smt. Madhu Raitani vs. ACIT, Smt. Shanta Devi vs. CIT, CIT vs. Bhaichand H. Gandhi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit
• Section: 68; 143(3); 143(2); 73; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . N o . 14 70 /A h d /2 01 9 ( A s se ss m e nt Y e a r : 20 14- 1 5 ) Ga utt a mb h ai N . N a g ar s h e t h D- 3 7, A ar ya ma n B u n gl o w , N r . R ai lw a y C r o ss in g , Op p. A na n d Ni k et a n S c h oo l, T h a lt ej – S ilaj R o ad , T ha lt ej , A h m ed a ba d- 38 00 5 4 V s . I .T .O . War d - 3 ( 1) ( 1 ) , A h me da ba d [ P AN N o. A A KP N 7 0 7 7 J ] (Appellant) .. (Respondent) Appellant by : Shri Manish Raj Vaidya, A.R. Respondent by : Shri Ramesh Kumar, Sr. D.R. D a t e of H ea r i ng 04.07.2023 D a t e of P r o no u n ce me nt 07.07.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals)-9, (in short “Ld. CIT(A)”), Ahmedabad on 03.07.2019 for A.Y. 2014-15. 2. The grounds of appeal raised by the assessee are as under: “I. Addition on account of unexplained cash credits u/s. 68 – Rs. 9,50,000/-, disallowance of interest for non providing confirmations – Rs. 3,59,000/- and disallowance of interest as excess interest paid over 12% - Rs. 25,289/- making total addition/disallowance of Rs. 13,34,298/-. 1. The learned A.O. as well as Hon'ble CIT (A) has erred in law and on facts while not considering the various replies of the appellant filed in the assessment as well as appellate proceedings in the right perspective manner. 2. The learned A.O. as well as Hon'ble CIT(A) has erred in law and on facts while not considering the contention of the appellant that in most of the cases the appellant has repaid the amount and after couple of days the same amount has been received and accepted from the same creditor, this is due to the procedure adopted of repayment of unsecured loans every 3 months with interest and reaccepting the same after 2 to 4 days. Hence, there is Nil fresh acceptance of deposits and the question of provisions of section 68 is not applicable. ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 2 - 3. The learned A.O. as well as the Hon'ble CIT (A) has erred in law and on facts while not considering that even after long correspondence with the unsecured loan giver parties, the parties have not submitted certain details to the appellant and of such parties the details of their addresses available with the appellant have been submitted to the learned A.O. and requested the learned A.O. that in the interest of justice to kindly issue notices to the said parties calling for the required details as per the provisions of the Income Tax Act, 1961, however, the learned A.O. has not called for the same. 4 The learned AO as well as Hon'ble CIT (A) erred in law and on facts while not considering that since the appellant has already submitted the required details and the appellant has fulfilled the requirements as per the provisions of section 68 of the Income Tax Act, 1961 while providing the identity of the creditor, creditworthiness of the creditor and genuinety of the transaction. 5. The learned A.O as well as Hon'ble CIT (A) has erred in law and on facts while not considering that the difference in the interest at the rate of 12% as paid by the appellant and as worked out by the learned AO that the same is as per the terms and conditions with the unsecured loan parties, the appellant pays the interest to the unsecured loan parties at the time of accepting the unsecured loans and such policy is followed from past years by the appellant and accordingly looking cumulatively there would be nil effect on the claim of interest by the appellant and it will have no effect on the interest claimed by the appellant as the same system of interest has been followed by the appellant from long years. Accordingly, there is no difference in the interest paid by the appellant. Under the circumstances the addition/disallowance made by the learned A.O and confirmed by the Hon'ble CIT (A) on account of unexplained cash credits u/s 68, - Rs. 9,50,000/-, disallowance of interest for non providing confirmations – Rs. 3,59,000/- and disallowance of interest as excess interest paid over 12% Rs 25,298/- making total addition/disallowance of Rs. 13,34,298/- is required to be deleted. The appellant, reserves its night to add, amend, alter, substitute or modify all or any of the grounds stated hereinabove as the facts and circumstances of case may justify” 3. The assessee has also filed additional grounds which are read as under: “1. On the facts and circumstances of the appellant’s case as well as in law, the Hon’ble CIT(A) has erred in confirming the action ld. AO of making addition to the tune of Rs.13,34,298/- as unexplained cash credit u/s. 68 while invoking the provisions of section 68 although it was within the knowledge of both the lower authorities that the appellant has not maintained the books of account. ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 3 - 2. That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.” 4. The assessee filed return of income on 20.10.2014 declaring total income at Rs. 31,20,870/-. The case was selected for scrutiny and notice under Section 143(2) was issued on 03.09.2015, which was served on the assessee. The assessee participated in the proceedings. During the year under consideration the assessee has shown salary income, income from house property and income from the other sources. The selected for scrutiny was received from service reported in Service Tax Return and Return of Income. The Assessing Officer observed that as per service tax return the assessee earned service charges of Rs. 21,51,037/- which was not reflected in the return of income. The Assessing Officer after taking cognizance of the submission of the assessee made additions of interest of Rs. 3,59,000/- and Rs. 25,298/- as well as unsubstantiated expenses and Rs. 9,50,000/- which is considered as unexplained cash credit. 5. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 6. There is a delay of 22 days in filing the present appeal for which the assessee has filed condonation of delay application. After taking cognizance of the reasons it appears that the delay is genuine. Hence, the delay is condoned. 7. The Ld. A.R. submitted that there is an additional ground in present appeal thereby stating that since the assessee has not maintained the books of accounts invocation of Section 68 of the Income Tax Act, 1961 is not ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 4 - justifiable. The Ld. A.R. submitted that a bare perusal of Section 68 reveals that an addition under the said statutory provision what only be made where any sum is found credited in the books of an assessee maintained for any previous year. Thus, the very sine qua non for making of an addition under Section 68 presupposes a credit of the aforesaid amount in the books of an assessee maintained for the previous year. A credit in the bank account of the assessee cannot be construed as a credit in the books of the assessee for the very reason that the bank account cannot be held to be the books of the assessee. The Ld. A.R. further submitted that Section 68 cannot be invoked on various deposits / credits found recorded in bank account of assessee in absence of books of assessee maintained for F.Y. 2013-14 relevant to A.Y. 2014-15. The Ld. A.R. relied upon the following decision:- (i) Babbal Bhatia vs. ITO (2018) 065 ITR 0532 (ii) ITO vs. Kamal Kumar Mishra (2013) 143 ITD 0686 (iii) Smt. Manasi Mahendra Pitkar vs. ITO (2016) 73 taxmann.com 68 (iv) Mehul V. Vyas vs. ITO (2017) 80 taxmann.com 311 (v) Smt. Madhu Raitani vs. ACIT (2011) 10 taxmann.com 206 (vi) Smt. Shanta Devi vs. CIT (1988) 37 taxmann.com 104 (vii) Punjab & Haryana High Court CIT vs. Bhaichand H. Gandhi (1983) 141 ITR 0067 On merit the Ld. A.R. submitted that the addition of interest expense to the extent of Rs. 3,59,000/- is concern, the Assessing Officer did not consider the said interest expense as genuine since, the assessee could not submit the confirmation from the relevant depositors and in the remand report the Assessing Officer observed that the creditworthiness is not established since the copy of income tax return, Profit & Loss Account and Balance etc. are ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 5 - not furnished. The Ld. A.R. submitted that genuineness of interest expenses linked with the character of the deposits. But the Assessing Officer has allowed the deposits received from the same depositor after repayment made by the assessee. Therefore, the Ld. A.R. submitted that the entire interest of unexplained depositors instead of considering the proportionate interest portion of unexplained deposit of the same depositor is contrary. Without prejudice to these statements the Ld. A.R. in alternate submitted that interest paid to depositors is to be disallowed than it should be made for such unsecured loan as are treated as unexplained with respect to deposits of Rs. 19,00,000/- which remain unexplained has to be disallowed and interest expense in respect deposits which to be considered as explained should be allowed. The Ld. A.R. relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd. 307 ITR 0334. The Ld. A.R. also pointed out that the details of unsecured loans and the documents which were submitted were available before the Assessing Officer as well as CIT(A). In fact, the assessee submitted confirmations, bank statements, PAN Cards and there was no new loans obtained by the assessee and only rotation of old loans and on similar line after getting specified. The Assessing Officer while rendering the assessment order under Section 143(3) of the Act in subsequent year i.e. A.Y. 2015-16 has made nil addition / disallowance. 8. The Ld. D.R. in respect of additional ground submitted that the assessee could not explain the cash credits component and therefore, the Assessing Officer has rightly invoking Section 68 of the Act. On merit the Ld. D.R. relied upon the assessment order and the order of the CIT(A). ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 6 - 9. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Hon’ble Punjab & Haryana High Court in case of Smt. Shanta Devi vs. CIT 171 ITR 532 has categorically mentioned that the assessee when does not maintain any books of accounts the same cannot be considered and cannot be taken into account as unexplained cash credits under Section 68. In the present assesee’s case the assessee is not maintaining the books of accounts as this is an admitted position. Thus, merely on the bank statement cannot attract provision of Section 68 of the Income Tax Act, 1961. Thus, additional ground taken by the assessee is justifiable and is allowed. Besides this on merit as well the treatment given by the assessee has been clearly set out in respect of loans and the payments of the interest to the depositors. In fact, the assessee has given confirmations as well as the genuineness of the transaction. Merely not filing the income tax return cannot debar the genuine transactions of the assessee in respect of this loans which have been repeated and in subsequent year the Revenue has accepted the same. The creditworthiness depends upon the act of both the parties and therefore, on merit as well the addition does not sustain. 10. In result the appeal of the assessee is allowed. This Order pronounced in Open Court on 07/07/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 07/07/2023 TANMAY, Sr. PS TRUE COPY ITA No. 1470/Ahd/2019 Gauttambhai N. Nagarsheth vs. ITO Asst.Year–2014-15 - 7 - आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 05.07.2023 2. Date on which the type draft is placed before the Dictating Member 06.07.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S .07.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .07.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 07.07.2023 7. Date on which the file goes to the Bench Clerk 07.07.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................