Shri Purushottam Harbhagwandas Madan, Ahmedabad V. The Income tax Officer,Ward-2(4), Surat

ITA 1568/AHD/2009

• Counselvise Citation: 156820514 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: U S BHATI
• Keywords: Unexplained cash credit; Depreciation; Proportionate interest
• Section: 133(6); 37(1); 68; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI MUKUL KUMAR SHRAWAT, JM AND A. K. GARO DIA, AM) ITA NOS. 1568/AHD/2009 A. Y.: 2005-06 SHRI PURUSHOTTAM HARBHAGWANDAS MADAN, C/O. M/S. RAVI & DEV, CHARTERED ACCOUNTANTS, 201, ARTH, BEHIND A. K. PATEL HOUSE, MITHAKALI SIXTH ROADS, AHMEDABAD 380 009 VS THE INCOME TAX OFFICER, WARD 2 (4), AAYAKAR BHAVAN, MAJURA GATE, OPP. NEW CIVIL HOSPITAL, SURAT PA NO. ACPHM 2556 Q (APPELLANT) (RESPONDENT) ITA NOS. 1711/AHD/2009 A. Y.: 2005-06 THE INCOME TAX OFFICER, WARD -2(4), SURAT, ROOM NO.119, 1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI PURSHOTTAM M. MADAN, A-71, LAV KUSH APARTMENTS, OPP. JAY AMBE NAGAR, THALTEJ, DRIVE-IN-ROAD, AHMEDABAD PA NO. ACHPM 2556 Q (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI U. S. BHATI, AR RESPONDENT BY SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING: 08-12-2011 DATE OF PRONOUNCEMENT: 16-12-2011 O R D E R 2 PER MUKUL KUMAR SHRAWAT: THESE ARE CROSS APPEALS ARISING FROM THE ORDER OF THE LEARNED CIT(A )-II, SURAT DATED 20-02-2009. A. ASSESSEES APPEAL 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS AS UND ER 1.0. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.26,10,087/- U/S 41(1) OF THE INCOME TAX ACT, 196 1 ALTHOUGH THE ADDITION WAS MADE BY THE ASSESSING OFFICER U/S 68 OF THE INCOME TAX ACT, 1961. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPO NDING ASSESSMENT ORDER PASSED U/S 144 READ WITH SECTION 1 43(3) OF THE IT ACT DATED 17-12-2007 ARE THAT THE ASSESSEE IN INDIV IDUAL CAPACITY IS IN THE BUSINESS OF TRADING IN TEXTILE, COLOUR & CHE MICALS ETC. IN RESPECT OF THE ABOVE REFERRED ISSUE THE OBSERVATION OF THE AO WAS THAT UNDER THE HEAD CURRENT LIABILITIES IN THE BALANCE SHEET THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.1,25,46,711/- WH ICH PERTAINED TO TRADE CREDITORS . SINCE THE ADMITTED FACTUAL POSITION WAS THAT NONE HAS ATTENDED FROM THE SIDE OF THE ASSESSEE, THEREFO RE, THE AO HAS MADE THE IMPUGNED ADDITION AFTER NOTING THE REASONS OF THE SAID ADDITION, RELEVANT PORTION OF WHICH IS REPRODUCED B ELOW: IN RESPONSE, NOBODY ATTENDED NOR WAS ANY WRITTEN R EPLY WAS RECEIVED. THE ASSESSEE HAS NOT EVEN PRESENTED T HE BOOKS OF ACCOUNTS OR ANY LEDGER ACCOUNTS OR PRIMARY RECORDS FOR VERIFICATION. THUS, ALL THE CREDIT ENTR IES IN FORM OF TRADE CREDITORS ETC., REMAIN UNVERIFIED AND THUS 3 UNEXPLAINED. BUT ON VERIFICATION OF THE BALANCE SHE ET IT APPEARS THAT NEW CREDITORS ADDED DURING THE YEAR WERE OF RS.26,10,087/-. UNDER THESE CIRCUMSTANCES AND FURTHER RELYING UPON THE ABOVE DECISIONS PRONOUNCED BY VARI OUS COURTS OF LAW AS DETAIL SUPRA, I AM LEFT WITH NO OP TION BUT TO TREAT ALL THESE CREDIT ENTRIES AMOUNTING TO RS.26,10,087/- TO BE UNEXPLAINED CREDITS AND ACCORD INGLY ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AS P ER PROVISIONS OF SECTION 68 OF THE I. T. ACT. THE SAID ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A). 3. THE DETAILED DISCUSSION WAS MADE BEFORE THE LEAR NED CIT(A) AND AT THE OUTSET IT WAS CHALLENGED THAT THE ADDITI ON U/S 68 OF THE IT ACT WAS WRONGLY MADE BY THE AO. THE ADDITION WAS IN RESPECT OF 4 PARTIES AND IN THIS REGARD THE ASSESSEE HAS SUBMITT ED AS FOLLOWS: '(A) REGARDING GUJARAT AGRO INDUSTRY ASSESSEE HAS SUBMITTED ONLY CONFIRMATION ON THE COPY OF LEDGER ACCOUNT FROM THE BOOKS OF THE ASSESSEE, ACCORDING TO WHICH ASSESSEE HAD MADE PURCHASES OF RS. 21,50,000/- DURI NG THE YEAR, BUT HAS NOT MADE ANY PAYMENTS. SO TO VERIFY GENUINENESS OF THE TRANSACTION, LETTER U/S 133(6) W AS ISSUED TO THIS PARTY ON THE ADDRESS GIVEN BY THE ASSESSEE. THIS LETTER WAS UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARK 'FACTORY HAS BEEN CLOSED''. THIS FACT WAS BR OUGHT TO THE NOTICE OF THE AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE. ASSESSEE ALSO HAS NOT GIVEN ANY DETAILS A S TO WHEN PAYMENTS WERE MADE. THEREFORE THE PURCHASES MADE FROM THIS PARTY REMAINED UNVERIFIED. . (B) REGARDING JITENDRA BROTHERS ASSESSEE HAS SUBMITTED ONLY CONFIRMATION ON THE COPY OF LEDGER ACCOUNT FROM THE BOOKS OF THE ASSESSEE, ACCORDING TO WHICH ASSESSEE HAD MADE PURCHASES OF RS. 7,69,600/- AND HAS MADE PAYMENTS OF RS, 52,500/- DURING THE YEAR. SO TO VERIFY GENUINENESS OF THE TRANSACTION, LETTER U/S 133(6) 4 WAS ISSUED TO THIS PARTY ON THE ADDRESS GIVEN BY THE ASSESSEE. THIS LETTER WAS REMAINED TO BE REPLIED TILL DATE. THIS FACT WAS BROUGHT TO THE NOTICE OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. ASSESSEE ALSO HAS N OT GIVEN ANY DETAILS AS TO WHEN PAYMENTS WERE MADE. THEREFORE THE PURCHASES MADE FROM THIS PARTY REMAINED UNVERIFIED. (C) REGARDING SHAIVAL MARKETING ASSESSEE HAS SUBMITTED ONLY CONFIRMATION ON THE COPY OF LEDGER ACCOUNT FROM THE BOOKS OF THE ASSESSEE, ACCORDING TO WHICH ASSESSEE HAD MADE PURCHASES OF RS.12,24,220/- AND HAS MADE PAYMENTS OF RS.38,000/- ONLY DURING TH E YEAR. SO TO VERIFY GENUINENESS OF THE TRANSACTION, LETTER U/S 133(6) WAS ISSUED TO THIS PARTY ON THE ADDRESS GIVE N BY THE ASSESSEE. IN RESPONSE TO THIS SHAIVAL MARKETING HAS REPLIED AS UNDER: 'DURING THE F.Y. 2004-05, THERE WAS SALE OF RS, NIL AS WELL AS RECEIPT OF RS.38,000/- TOWARDS OUTSTANDING ACCOUNT BALANCE.' THE AFORESAID PARTY HAS ALSO SUBMITTED THE COPY OF LEDGER ACCOUNT OF ASSESSEE FROM ITS BOOK OF ACCOUNTS , ACCORDING TO WHICH OPENING BALANCE AS O N 1.04. 2004 WAS RS. 1,20,735/- DEBIT AND DURING THE YEAR I T WAS CREDITED BY PAYMENT OF RS. 38,000/- AND RATE DIFFER ENCE OF RS.6,985/- AND BALANCE REMAINING AS ON 31.03.2005 W AS RS. 75,7SO/-. FROM THE LEDGER ACCOUNT IT IS CLEAR T HE SHAIVAL MARKETING HAS NOT MADE ANY SALES TO ASSESSE S. IT IS ALSO PERTINENT TO MENTION HERE THAT ON THE CONFI RMATION FILED BY THE ASSESSEE OF M/S SHAIVAL MARKETING SING ED BY ONE PARES/7 AS PROPRIETOR, WHEREAS THE CONFIRMATION RECEIVED IN RESPONSE TO NOTICE U/S 133(6) WAS NOT SINGED BY PARES/7 WHICH CLEARLY INDICATE THAT ASSESSEE TRIED TO BEFOOL THE DEPARTMENT. THEREFORE, ON THE BASIS OF D ETAILS MADE AVAILABLE BY THE SHAIVAL MARKETING IT CAN BE S AFELY CONCLUDED THAT ASSESSEE HAS SUBMITTED BOGUS CONFIRMATION OF SHAIVAL MARKETING BEFORE THE DEPARTMENT AND TRIED TO CHEAT THE DEPARTMENT.' THIS FACT WAS B ROUGHT 5 TO THE NOTICE OF THE AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE. THEREFORE THE PURCHASES MADE FROM THIS PA RTY REMAINED UNVERIFIED . (D) LETTER U/S 133(6) WAS ISSUED TO SAIBABA GRANITES ON THE ADDRESS GIVEN BY THE ASSESSEE. THIS LETTER REMAINED UNREPLIED. THIS FACT WAS BROUGHT TO THE NO TICE OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. ASSE SSEE ALSO HAS NOT GIVEN ANY DETAILS AS TO WHEN PAYMENTS WERE MADE. THEREFORE THE PURCHASES MADE FROM THIS PARTY REMAINED UNVERIFIED. ON DUE CONSIDERATION OF THOSE FACTS THE LEARNED CIT (A) HAS HELD THAT EVEN IF THOSE CREDITORS WERE NOT VERIFIABLE, NO ADD ITION SHOULD HAVE BEEN MADE U/S 68 OF THE IT ACT BY THE AO. HE HAS EM PHASIZED THAT IN RESPECT OF THOSE CREDITORS THE BALANCES REPRESENTED THE EXPENSES AND GOODS PURCHASED ETC. HOWEVER, IN HIS OPINION TH E ADDITION COULD HAVE BEEN MADE U/S 41(1) OF THE IT ACT. HE HAS NOTI CED THAT THE PURCHASES OF RS.21,50,000/- WERE MADE FROM M/S. GUJ ARAT AGRO INDUSTRIES. FOR THE PURPOSE OF INQUIRY NOTICE WAS I SSUED BUT RETURNED BY THE POSTAL DEPARTMENT. THE ASSESSEES CONTENTION WAS THAT THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES, T HEREFORE, VERIFIABLE FROM THE RECORDS OF THE ASSESSEE. CONFIR MATION WAS FURNISHED. IN RESPECT OF M/S. JITENDRA BROTHERS, P URCHASES OF RS.7,69,600/- WERE SHOWN. IN THAT CASE AS WELL NO R EPLY WAS RECEIVED FROM THE SAID PARTY. LIKEWISE, IN RESPECT OF M/S. S HAIVAL MARKETING PURCHASES OF RS.12,24,220/- WERE SHOWN AND THE SAID PARTY HAS FILED CONFIRMATION IN RESPONSE TO NOTICE U/S 133(6) OF TH E IT ACT. THERE WAS BALANCE OUTSTANDING OF RS.38,000/- WHICH WAS CLAIME D TO HAVE BEEN PAID. ON DUE CONSIDERATION OF THOSE FACTS THE LEAR NED CIT(A) HAS OPINED THAT IN THE ABSENCE OF REQUISITE EVIDENCES T HE ADDITION HAS TO 6 BE CONFIRMED BUT UNDER THE PROVISIONS OF SECTION 41 (1) OF THE IT ACT. HE HAS CONCLUDED THAT BY VIRTUE OF THE POWERS VESTE D U/S 250 AND U/S 251 OF THE IT ACT HE DOES NOT INVALIDATE THE SAID A DDITION AND CONFIRMED THE SAME BY INVOKING THE PROVISIONS OF SE CTION 41(1) OF THE IT ACT. 4. FROM THE SIDE OF THE ASSESSEE THE FOREMOST CONTE NTION WAS THAT THE ADDITION SHOULD NEITHER HAVE BEEN MADE U/S 68 NOR U/S 41(1) OF THE IT ACT BECAUSE BOTH THE SECTIONS WERE WRONGLY A PPLIED BY THE REVENUE AUTHORITIES. IT WAS ALSO ARGUED THAT THE PU RCHASES WERE MADE DURING THE YEAR UNDER CONSIDERATION, THEREFORE , PROVISIONS OF SECTION 41(1) OF THE IT ACT WERE WRONGLY ATTRACTED BY THE LEARNED CIT(A). 5. FROM THE SIDE OF THE REVENUE LEARNED DR, MR. SAM NIR TEKRIWAL HAS ARGUED THAT IN THE LIGHT OF THE PROVISIONS OF S ECTION 41 (1) OF THE IT ACT THE LIABILITY WHICH DOES NOT EXIST CAN BE DISRE GARDED BY THE AO U/S 41(1) OF THE IT ACT. THE LEARNED DR HAS ALSO ARGUED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF THE PURCHASES, THEREFORE, THE EXPENDITURE WAS TO BE DISALLOWED AND ACCORDINGLY THE PROVISIONS WERE CORRECTLY INVOKED BY THE AUTHORITIE S BELOW. 6. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED TH E ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATI ON FILED. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE PROVISIONS OF SECTI ON 68 OF THE IT ACT HAVE WRONGLY BEEN INVOKED BY THE AO. AS PER THE DET AILS FURNISHED AND THE EXPLANATION OFFERED, THE OUTSTANDING AMOUNT S DO NOT REPRESENT EITHER LOANS OR ADVANCES BY THOSE PARTIES . FACTS OF THE 7 CASE HAVE ALSO ESTABLISHED THAT IT WAS NOT THE TRAN SACTION OF CASH CREDIT. THE UNDISPUTED FACT IS THAT THE LIABILITIE S IN QUESTION WERE TRADE LIABILITIES, THEREFORE, IN THE BALANCE SHEET IT WAS CLASSIFIED UNDER THE HEAD SUNDRY CREDITORS. UP TO THIS EXTENT, WE HEREBY APPROVE THE VIEW TAKEN BY THE LEARNED CIT(A) THAT THE ADDIT ION U/S 68 OF THE IT ACT WAS WRONGLY MADE BY THE AO . THE NEXT QUESTION IS THAT WHETHER THE PROVISIONS OF SECTION 41(1) OF THE IT A CT WERE CORRECTLY INVOKED BY THE FIRST APPELLATE AUTHORITY. PROVISION S OF SECTION 41(1) OF THE IT ACT CAN BE INVOKED WHERE AN ALLOWANCE OR DED UCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF L OSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND S UBSEQUENTLY DURING ANY PREVIOUS YEAR SUCH TRADING LIABILITY CEASED TO EXIST BY WAY OF REMISSION OR CESSATION, THEN THE BENEFIT IF OBTAINE D SHALL BE DEEMED TO BE THE PROFITS & GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO TAX AS INCOME OF THAT PREVIOUS YEAR. FROM THE SIDE OF THE ASSESSEE AN ARGUMENT WAS RAISED THAT THE LIABIL ITIES TOWARDS PURCHASES WERE IN RESPECT OF THE TRANSACTION OF THE YEAR UNDER CONSIDERATION, HENCE THE PROVISIONS OF SECTION 41(1 ) OF THE IT ACT SHOULD NOT HAVE BEEN INVOKED. ON THE OTHER HAND, TH E ARGUMENT OF THE REVENUE WAS THAT EVEN IF THE LIABILITY CEASED T O EXIST, IF PERTAINS TO THE YEAR UNDER CONSIDERATION, THE PROVISIONS OF SEC TION 41(1) OF THE IT ACT CAN BE INVOKED. ACCORDING TO OUR HUMBLE UNDERST ANDING OF LAW IN ORDER TO APPLY SECTION 41(1) OF THE IT ACT THE FOLL OWING POINTS ARE TO BE KEPT IN VIEW: 1. IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR , ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCURRED BY THE ASSESSEE. 8 2. SUBSEQUENTLY, A BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSA TION THEREOF DURING THE YEAR IN WHICH SUCH EVENT OCCURRE D. 3. IN THAT SITUATION THE VALUE OF THE BENEFIT ACCRU ING TO THE ASSESSEE IS DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS WHICH OTHERWISE WOULD NOT BE HIS INCOME. 4. SUCH VALUE OF THE BENEFIT IS MADE CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE PREVIOUS YEAR IN WH ICH SUCH BENEFIT WAS OBTAINED. THESE ARE THE SALIENT FEATURES FOR THE APPLICATION OF SEC.41(1) OF THE ACT. IF WE ACCEPT THE ARGUMENT AS RAISED FROM THE S IDE OF THE REVENUE, THEN THE INTENTION FOR WHICH THE PROVISIONS OF SECT ION 41(1) OF THE IT ACT WERE INTRODUCED SHALL BE DEFEATED. IN CASE ANY LIABILITY IS IN DOUBT, WHICH PERTAINS TO THAT VERY FINANCIAL YEAR, OR THE ASSESSEE IS UNABLE TO ESTABLISH THE GENUINENESS OF THE EXPENDIT URE, THEN THE SAME CAN BE DISALLOWED UNDER THE GENERAL PROVISIONS OF THE STATUTE I.E. SECTION 37(1) OF THE IT ACT OR LIKEWISE ANY OT HER PROVISION WHILE COMPUTING THE PROFITS & GAINS U/S 28 OF THE IT ACT. BUT AS FAR AS APPLICABILITY OF SECTION 41(1) OF THE IT ACT IS CON CERNED, THE SAME IS TO BE APPLIED IN THOSE CASES WHERE A BENEFIT HAD ALREA DY BEEN TAKEN OR A DEDUCTION WAS CLAIMED AND SUBSEQUENTLY IT WAS FOU ND THAT THE SAID BENEFIT WAS NO MORE PERMISSIBLE, THEN IN THAT SITUA TION THE SAID ALREADY AVAILED BENEFIT IS DEEMED TO BE THE PROFIT OF THE ASSESSEE. AS FAR AS THE ASCERTAINMENT OF THE LIABILITY IS CON CERNED, WE ARE OF THE VIEW THAT THERE SHOULD BE EITHER REMISSION OF THE L IABILITY BY THE CONCERNED CREDITOR OR THAT THERE WAS NO HOPE LEFT T O MAKE THE 9 IMPUGNED PAYMENT AND THE LIABILITY HAD COME TO AN END. HOWEVER, IN THE PRESENT CASE THE ASSESSEE AS WELL AS THOSE CRED ITORS HAS AFFIRMED THE EXISTENCE OF THE LIABILITY. REQUISITE CERTIFICA TES IN THIS REGARD ARE ALSO ON RECORD. RATHER, THE AO HAS MADE THE IMPUGNE D ADDITION MERELY ON THE BASIS OF THE DIFFERENCE SHOWN IN THE BALANCE SHEET IN THE OUTSTANDING OPENING BALANCE AND THE CLOSING BAL ANCE OF THE CURRENT LIABILITIES. THE SAID BASIS WAS PATENTLY WR ONG FOR INVOKING THE PROVISIONS OF SECTION 68 OF THE IT ACT. WE, THEREFO RE, HELD THAT THE IMPUGNED ADDITION WAS WRONGLY MADE EITHER U/S 68 OR U/S 41 (1) OF THE IT ACT. THIS GROUND OF APPEAL OF THE ASSESSEE I S ALLOWED. 7. GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE READ A S UNDER: 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 24,000/- ON ACCOUNT OF ESTIMATED ANNUAL LETTING VALUE OF HOUSE PROPERTY. 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF 20% MADE BY THE A.O; IN RESPECT OF FOLLOWING EXPENSES: (A) INTEREST PAID TO LIC (B) MARUTI CAR INSURANCE EXPENSES (C) MISC. EXPENSES (D) MOBILE EXPENSES (E) PETROL, OIL AND CAR REPAIRING EXPENSES AND (F) TELEPHONE EXPENSES (G) DEPRECIATION ON MOTOR CAR 10 8. HAVING CONSIDERED THE FACTS OF THE CASE, THE LEA RNED AR HAS FAIRLY CONCEDED AND EXPRESSED NOT TO PRESS THESE GR OUNDS. THESE GROUNDS ARE HEREBY DISMISSED BEING NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. B. REVENUES APPEAL 10. GROUND NO.1 OF THE APPEAL OF THE REVENUE READS AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE BY A. O. OF RS.16,45,726/ - ON ACCOUNT OF UNEXPLAINED AND IN-GENUINE CASH CREDIT U/S. 68 OF THE ACT. 12. UNDER THE HEAD UNSECURED LOANS IN THE BALANCE SHEET IT WAS NOTICED THAT THE OUTSTANDING LOANS WERE IN RESPECT OF THE FOLLOWING TWO PARTIES: 1. BHARATBHAI H. MADAN RS. 50,000/- 2. H. B. DAS MADAN RS.15,95,726/- TOTAL RS.16,45,726/- SINCE, THE ASSESSEE HAS NOT RESPONDED THE NOTICES, THEREFORE, AN EX- PARTE ORDER WAS PASSED BY THE AO AND HE HAS HELD TH AT THE IDENTITY AND CAPACITY OF THE CREDITORS AS ALSO THE GENUINEN ESS OF THE 11 TRANSACTION WAS NOT ESTABLISHED, HENCE THE AMOUNT I S REQUIRED TO BE ADDED U/S 68 OF THE IT ACT. ACCORDINGLY, ADDITION O F RS.16,45,726/- WAS MADE U/S 68 OF THE IT ACT. 13. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY AND THE LEARNED CIT(A) HELD AS UNDER: 4.4 I HAVE CAREFULLY CONSIDERED THE ISSUE AND I HA VE ALSO GONE THROUGH THE COPIES OF THE ACCOUNTS OF HT4 E SAID TWO CREDITORS IN THE BOOKS OF THE ASSESSEE. WITH REGARD TO THE LOAN OF RS.1,50,000 FROM SHRI BHARAT MADAN, HIS ACCOUNT SHO WS AN OPENING CREDIT BALANCE OF RS.45,000, THE RECEIPT OF TWO SUM S OF RS.75,000 EACH BY CHEQUES DRAWN ON HDFC BANK, AND THE REPAYMENT OF RS.3 LAKHS DURING THE YEAR, LEAVING A DEBIT BALANCE OF R S.1,05,000. THIS CLEARLY SHOWS THAT THERE WAS NO OUTSTANDING CREDIT IN THE NAME OF THE SAID PARTY IN THE BOOKS OF THE ASSESSEE. WITH REGAR D TO H. P. MADAN, HIS IDENTITY WAS ESTABLISHED BEING THE ASSESSEES F ATHER, THE ONLY OBJECTION RAISED BY THE AO WAS WHY THE CASH RECEIPT ARISING FROM THE SALE OF LAND WAS NOT DEPOSITED BY HIS FATHER IN HIS BANK ACCOUNT. IT IS WELL KNOWN THAT THE UNACCOUNTED MONEY RECEIVED AGAI NST THE SALE OF IMMOVABLE PROPERTY CANNOT BE DEPOSITED IN THE BANK ACCOUNT. IT HAS BEEN ACCEPTED BY THE AR THAT RS.45,000 HAD BEEN REC EIVED IN CASH AGAINST THE SALE OF LAND OF RS.14 LAKHS AND THE SAM E WAS NOT DISPUTED BY THE AO. THIS SUM WAS REMITTED TO THE AS SESSEE WITH THE HELP OF ACCOUNT-PAYEE DEMAND DRAFTS EACH OF WHICH W ERE LESS THAN RS.50,000, SINCE ANY SINGLE TRANSACTION ABOVE RS.50 ,000 WOULD 12 REQUIRE PAN AND IT DETAILS. DETAILS OF SUCH TRANSAC TIONS ARE ALSO REPORTED BY THE BANKS TO THE CONCERNED AUTHORITIES, ESPECIALLY THE IT DEPARTMENT. GIVEN SUCH FACTS AND CIRCUMSTANCES OF T HE CASE, I AM OF THE VIEW THAT BOTH THE LOANS OF RS.1,50,000 IN THE NAME OF SHRI BHARAT MADAN, THE ASSESSEES BROTHER AND RS.14,95,726 IN T HE NAME OF THE ASSESSEES FATHER, SHRI H. B. MADAN STOOD SATISFACT ORILY EXPLAINED. THE AO IS THEREFORE DIRECTED TO DELETE THE ADDITION OF RS.16,45,726. 14. FROM THE SIDE OF THE REVENUE LEARNED DR, MR. SAMIR TEKRIWAL APPEARED AND ARGUED THAT THE AMOUNTS IN QUESTION WE RE ADVANCED TO THE ASSESSEE BY THE CLOSE RELATIVE AND THOSE ADVANC ES WERE OUT OF THE CASH TRANSACTION RECEIVED ON SALE OF PROPERTY O VER AND ABOVE THE SALE CONSIDERATION DISCLOSED. THE LEARNED DR HAS RE FERRED TO THE PROVISIONS OF SECTION 68 OF THE IT ACT AND VEHEMENT LY ARGUED THAT THE ASSESSEE HAS NOT ESTABLISHED THE GENUINENESS OF THE TRANSACTION, THEREFORE, THE RELIEF WAS WRONGLY GRANTED. HE HAS A LSO MADE A STATEMENT THAT FROM THE EXPLANATION OFFERED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) IT COULD BE TRANSPIRED THAT ON S ALE OF PROPERTY, THE FATHER OF THE ASSESSEE WAS IN POSSESSION OF SOME UN ACCOUNTED ON MONEY WHICH WAS ADVANCED TO THE ASSESSEE THROUGH NU MBER OF DEMAND DRAFTS EACH OF LESS THAN RS.50,000/- I.E. RS .49,000/- SO AS TO AVOID THE LEGAL PROCEEDINGS. SUCH TYPE OF TRANSACTI ONS SHOULD NOT BE ENCOURAGED AND THE ADDITIONS DESERVE TO BE UPHELD. 13 15. THE LEARNED AR, MR. U. S. BHATI APPEARED AND HA S SUPPORTED THE ORDER OF THE LEARNED CIT(A). 16. ON HEARING BOTH THE SIDES AS WELL AS ON EXAMINA TION OF THE FACTS IT IS NOT IN DISPUTE THAT BOTH THE PARTIES WE RE IDENTIFIABLE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS SHOWN THE IR CAPACITY TO ADVANCE THE LOANS IN QUESTION. IT WAS FOUND THAT TH ERE WAS SALE OF AGRICULTURAL LAND AND OUT OF THE SAID SOURCES THE I MPUGNED ADVANCES WERE MADE TO THE ASSESSEE. THE TRANSACTIONS WERE FO UND TO BE THROUGH BANKING CHANNEL, THEREFORE, VEHEMENT ARGUME NT WAS THAT UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES O F THE CASE THE TRANSACTION IN QUESTION WAS VERY MUCH GENUINE. THE TOTALITY OF THE CIRCUMSTANCES THUS DEMANDS TO AFFIRM THE FACTUAL FI NDING OF THE LEARNED CIT(A). RESULTANTLY, WE HEREBY DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 17. GROUND NO.2 OF THE APPEAL OF THE REVENUE READS AS UNDER: 2) ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.42,630/- MADE BY A. O. OUT OF CLAIM OF INTEREST FOR UTILIZATION OF INTEREST BEAR ING FUNDS IN ADVANCING INTEREST FREE LOANS. 18. ON PERUSAL OF THE BALANCE SHEET IT WAS NOTICED BY THE AO THAT A LOAN OF RS.1,05,000/- WAS ADVANCED TO SHRI BHARAT M ADAN AND A SUM 14 OF RS.2,50,250/- TO M/S. SUNTEX INDUSTRIES PVT. LTD . WERE GIVEN DURING THE YEAR. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD AVAILED CASH CREDIT ACCOUNT AND PAID INTEREST THEREON. THE ASSES SEE HAS CLAIMED INTEREST EXPENDITURE OF RS.60,510/- AS PER THE PROF IT & LOSS ACCOUNT. THE ASSESSEE WAS HAVING A CASH CREDIT ACCOUNT MAINT AINED WITH SUTEX COOPERATIVE BANK LTD. ON THAT BASIS THE AO HA S HELD THAT PROPORTIONATE INTEREST WAS TO BE DISALLOWED AND IN THIS REGARD IT WAS HELD AS UNDER: THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUND S TO BOTH THESE PERSONS AS INTEREST FREE FOR NON BUSINES S PURPOSES. HENCE, PROPORTIONATE INTEREST IS REQUIRED TO BE DISALLOWED. THE INTEREST IS WORKED OUT @12% I.E. BA NK RATE. THE TOTAL INTEREST ON INTEREST FREE ADVANCES AMOUNTING TO RS.3,55,250/- (1,05,000 + 2,50,250) GI VEN TO BOTH THE PERSONS WORKED OUT TO RS.42,630/-. THUS, A S DISCUSSED ABOVE, NET DISALLOWANCE OF RS.42,630/- IS MADE OUT OF INTEREST EXPENDITURE FOR DERIVING THE I NTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES AND THE SAM E IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 19. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST AP PELLATE AUTHORITY, RELIEF WAS GRANTED VIDE FOLLOWING PARA: 8.4 I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . THE DISALLOWANCE OF THE INTEREST PAID ON THE LOAN(S) TA KEN FROM LIC HAS ALREADY BEEN SUSTAINED WHILE DECIDING THE E ARLIER GROUND OF APPEAL, WHICH LEAVES US WITH THE INTEREST PAID TO THE BANK ON THE CASH CREDIT LIMIT. IT IS A FACT, 15 WHICH HAS NOT BEEN DISPUTED, THAT NO INTEREST WAS E ITHER PAID OR RECEIVED ON AMOUNTS TAKEN OR GIVEN TO/FROM SHRI BHARAT MADAN. AS REGARDS M/S. SUTEX INDUSTRIES PVT. LTD., THE FACT THAT THE ADVANCE WAS NOT RECOVERABLE HAS A LSO BEEN VIRTUALLY ACCEPTED BY THE AO. HE HAS REFERRED TO THE CASE FILED BY THE ASSESSEE AGAINST THE BANK. THIS M EANS THAT NO INTEREST COULD EITHER BE RECEIVED FROM THE BANK EVEN THOUGH IN THE CASE PAPERS, THE CHARGING OF INT EREST MAY HAVE BEEN SHOWN. ON THE OTHER HAND, THE ASSESSEE HAD MORE THAN SUFFICIENT INTEREST-FREE FUN DS TO GIVE INTEREST-FREE LOANS , AT LEAST THE ONUS POINTED OUT BY THE AO. THERE THUS REMAINS NO SCOPE FOR ANY DISALLOWANCE OUT OF THE INTEREST EXPENSES. 20. FROM THE APPRECIATION OF FACTS FEW POINT S ARE GATHERED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE UNSECURED LOANS OF RS. 33,17,322/- AND ALSO HAD CAPITAL ACCOUNT OF RS. 6,2 0,481/- HOWEVER, ONLY RS. 3,55,250/- WAS ALLEGED TO BE INTEREST FREE ADVANCE. IN THE CASE OF TORRENT FINANCIERS 73 TTJ 624(AHD.) IT WAS HELD THAT IF TOTAL INTEREST FREE ADVANCES DO NOT EXCEED THE TOTAL INTE REST FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO INTEREST IS DISALLO WABLE ON ACCOUNT OF UTILIZATION OF FUNDS FOR NON-BUSINESS PURPOSE. FURT HER, IN THE CASE OF PREM HEAVY ENGINEERING WORKS 285 ITR 554 ( ALL.) IT WAS HELD THAT IN CASE OF INTEREST PAID BY THE ASSESSEE ON BANK OVER- DRAFT COULD NOT BE PARTLY DISALLOWED ON THE GROUND THAT IT HAD MADE IN TEREST FREE ADVANCES TO ITS SISTER CONCERNS , SINCE ASSESSEE HA D SUFFICIENT 16 AMOUNT OF OWN FUNDS OR INTEREST FREE FUNDS. THEREF ORE UNDER THE TOTALITY OF THE CIRCUMSTANCES AND FOLLOWING THE PRE CEDENTS WE HEREBY AFFIRM THE FINDINGS OF THE FIRST APPELLATE AUTHORIT Y AND DISMISS THE GROUND OF THE REVENUE. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. 16/12/2011 SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (MUKUL KR. SHRAWAT) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER //TRUE COPY// D Y. REGISTRAR, ITAT, AHMEDABAD