ACIT, Circle-3(2), Ahmedabad V. M/s. Kraft Laminate, Ahmedabad

ITA 1841/AHD/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6756 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 26-08-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Unexplained cash credit; Business income; Business expenditure; Reason to believe; Set aside; Bogus
• Section: 68; 40A(3); 208; 43

Judgement Text

आयकर य कर , हमदाबाद याय ‘‘स ’’ हमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD (through web-based video conferencing platform) ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 1841/Ahd/2018 Assessment Years : 2015-16 Assistant Commissioner of Income-tax, Circle 3(2), Ahmedabad Vs M/s. Kraft Laminate, C/o. Laxmi Timber, Nr. Mahalaxmi Textile Mill, Opp. Rajbai Patel Timber Market, Narol Naroda Highway, Narol, Ahmedabad-382405 PAN : AAMFK 8120 F ा / (Appellant) य / (Respondent) Revenue by : Shri V.K. Singh, Sr. DR Assessee by : Shri Manish J. Shah, Advocate /Date of Hearing : 24/02/2022 /Date of Pronouncement: 16/03/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : This appeal is preferred by the Revenue against the order of learned Commissioner of Income-Tax (Appeals)-3, Ahmedabad (“CIT(A)” in short) dated 11.06.2018. 2. The issue raised by the Revenue in Ground No.1 of this appeal relates to the deletion by the learned CIT(A) of the addition of Rs.32,00,000/- made by the Assessing Officer on account of unsecured loans by treating the same as unexplained cash credit under Section 68 of the Income-tax Act, 1961 (“the Act” in short). 3. The assessee, in the present case, is a partnership-firm which is engaged in the business of manufacturing of Laminate Sheets. The return of income for the year under consideration was filed by it on 15.09.2015 declaring a loss of (-) Rs.2,29,71,765/-. In the balance-sheet filed along with ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 2 the said return, unsecured loans of Rs.1,43,91,315/- were shown by the assessee. In this regard, the required details and documents were filed by the assessee during the course of assessment proceedings to support and substantiate the said unsecured loans. From the perusal of the details so filed by the assessee, the Assessing Officer found that similar type of income was returned by certain creditors which was below taxable limit. He also noticed that certain parties did not have sufficient balance in their accounts throughout the year and funds were deposited in the bank accounts just before the loans were given to the assessee. He further noticed that no interest was paid by the assessee on the said loans. He, therefore, issued a notice requiring the assessee to show-cause as to why the unsecured loans to the extent of Rs.37,00,000/- should not be treated as unexplained cash credits and the amount of such loans should not be added as income of the assessee under Section 68 of the Act. In reply, written submission was filed by the assessee on 15.12.2017 stating, inter alia, as under:- “During this year, we had obtained a unsecured loans from 10 Parties the necessary explanation, confirmation and source was already submitted to you at the time of asst. Proceedings and the same was duly verified by you, your attention is invited Para 2(1) it was stated by you that while examination the submitted details and documents it is notice that credit worthiness are unproved. The basic requirements of the assessee to extent of onus of the assessee are as under as per section 68 of the income tax: (1) Proof of Identity of Creditors (2) Genuiness of Transaction (3) Capacity of Creditors to advance the money. In our case the condition no.1 and no.2 is fulfilled by us in all manners and no any adverse remarks pointed out by in your show case notice hence it presume that you had no any objection or no any reason to believe as this two conditions not fulfilled by us. You required as per your notice that we have to established the capacity of the creditors to advance the money to us, in this regards we enclosed herewith the Annexure-A to prove the capacity of the creditors for advance money to us. The Chart Showing that all the parties who had made an advances to us having a sufficient own cash balance/ Cheque balance in their respective manners and account which is fully ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 3 support the capacity of the creditors having a source of income/ capital in their account. Out of this credit balance advance was given to us.” 4. On the basis of the above submission, it was contended on behalf of the assessee before the Assessing Officer that primary burden that lay on it to establish the relevant loan transactions in terms of Section 68 of the Act was duly discharged and if the Department had any adverse material to show that the said loans were not genuine, an opportunity may be given to rebut the same. To support this contention, reliance inter alia was placed on behalf of the assessee on the decision of Hon’ble Gujarat High Court in the case of Rohini Builders Vs. DCIT, 256 ITR 360 (Guj.). The submissions made on behalf of the assessee were not found acceptable by the Assessing Officer, except in case of the loan amount of Rs.5,00,000/- received from Rameshbhai Naranbhai Patel; and, he proceeded to add the balance amount of Rs.32,00,000/- to the total income of the assessee by treating the unsecured loans to that extent as unexplained cash credits under Section 68 of the Act for the following reasons given in the assessment order: “A. The assessee has shown loan from various parties but none of them have creditworthiness to provide loans to assessee. It is revealed from submitted bank statement of the parties that in the bank account of most of them, cash amount equal to the loan entry was deposited immediate to loan entry. Further, most of them have declared in their income in the return of income at the basic exemption of tax liability. Further, modus operandi of the transaction reveals that the modus operandi of the transaction of loan is same, it is cleared in summary manner that none of them have capability to provide loans to others. B. In respect of all the parties, it is seen that they are advancing sums of money to the assessee but the source of income is not clear. They have deposited fund in their accounts but there is no explanation of the source of deposits. Their creditworthiness is simply not proved. All are advancing huge sums of money but details are not available of their income savings and expenditures. Thus the creditworthiness and the genuineness of transactions are all in doubt...." C. An analysis of the above facts shows that none of those individuals' parties had the financial strength to lend such sums of money to the assessee, ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 4 that too without interest and without a loan agreement The mere establishing of their identity and the fact that the amounts had been transferred through cheque payments did not by itself mean that the transactions were genuine. The identity, creditworthiness and the genuineness are all in doubt. Moreover, that these amounts have been advanced to the assessee without any explanation as to their relationship with the assessee, the reason for the payment of such amounts, as also whether any repayments have, in fact, been made.” 5. The addition of Rs.32,00,000/- made by the Assessing Officer by treating the unsecured loans as unexplained cash credits under Section 68 of the Act was challenged by the assessee before the learned CIT(A) and the following details were furnished by the assessee in order to explain the relevant cash credits representing unsecured loans of Rs.32,00,000/- during the course of appellate proceedings before the learned CIT(A):- SR NO NAME & ADDRESS PAN LOAN AMOUNT DESCRIPTION 1 ASHISH DINESHBHAI PATEL,. ADD: 16, BASHIDHAR SOC. NR. BANSHIDHAR GARDEN, VASNA, AHMEDABAD - 380007 AARJPP3870H 150000.00 LOAN GIVEN VIA CHEQUE FROM OWN BANK ACCOUNT. PAN CARD AND ITR ARE ON FILE AND THUS SOURCE OF IMCOME AND LOAN AMOUNT GIVEN IS VERIFIED HEREWITH 2 DINESHBHAI HARIBHAI PATEL (HUF) ADD: 16, BASHIDHAR SOC. NR. BANSHIDHAR GARDEN, VASNA, AHMEDABAD - 380007 ARJPP3870H 200000.00 LOAN GIVEN VIA CHEQUE FROM OWN BANK ACCOUNT. PAN CARD AND ITR ARE ON FILE AND THUS SOURCE OF IMCOME BEING BUSINESS INCOME AND LOAN AMOUNT GIVEN IS VERIFIED HEREWITH 3 KIREN PRAVINBHAI PATEL, ADD: 6/A SHREE RAMKRISHNA CO. OP. HOUSING SOC. GITAMANDIR ROAD, NR. SHAHALAM TOLNAKA, AHMEDABAD-380007 ARJPP3870H 250000.00 LOAN GIVEN VIA CHEQUE FROM OWN BANK ACCOUNT. PAN CARD AND ITR ARE ON FILE AND THUS SOURCE OF IMCOME BEING BUSINESS INCOME AND LOAN AMOUNT GIVEN IS VERIFIED HEREWITH 4 PRAVINBHAI HIRABHAI PATEL, ADD: 6/A SHREE RAMKRISHNA CO. OP. HOUSING SOC. GITAMANDIR ROAD, NR. SHAHALAM TOLNAKA, AHMEDABAD-380007 ARJPP7870H 200000.00 LOAN GIVEN VIA CHEQUE FROM OWN BANK ACCOUNT. PAN CARD AND ITR ARE ON FILE AND THUS SOURCE OF IMCOME BEING BUSINESS INCOME AND LOAN AMOUNT GIVEN IS VERIFIED HEREWITH 5 (RAMESHBHAI NARANBHAI PATEL, ADD: A2, SWASTIK PARK FLATS, OPP. JUDGES BUNGALOW, BODAKDEV, AHMEDABAD AGXPP1035H 500000.00 THE ASSESSEE HAS GIVEN ITR ON RECORD AND BASED ON SOURCE OF INCOME AND BANK STATEMENT, IT IS VERIFIED THAT MONEY IS RECEIVED FROM BANK 6 R.S. ENTERPRISE (PROP: RANJANBEN RAMESHBHAI CHEKALIYA) ADD: 91, MACHICHUNAGAR, CINZOL DASKROI, AHMEDABAD-382445 ATKPC5963F 800000.00 THE ASSESSEE HAS GIVEN PAN AND ITR AND IT IS VERIFIED THAT BUSINESS INCOME IS SHOWN. MONEY IS RECEIVED VIA BANKING CHANNELS. 7 SHANTABEN MOHANLAL PATEL, ADD: 80, PANKAJ SOC., NR. ANJALI BUS STOP, ANJALI CHAR RASTA, PALDI, AHMEDABAD-380022 AEKPP0275L 400000.00 THE ASSESSEE HAS GIVEN PAN AND ITR ON RECORD AND THE SOURCE OF INCOME SHOWN IS BUSINESS AND OTHER SOURCES. MONEY IS RECEIVED VIA BANKING CHANNELS. 8 SHWETA ASHISHBHAI PATEL, ADD: 16, BASHIDHAR SOC. NR. BANSHIDHAR GARDEN, VASNA, AHMEDABAD - 380007 RWEPP2123E 100000.00 THE ASSESSEE HAS GIVEN PAN AND ITR ON RECORD AND SOURCE OF INCOME IS SHOWN. MONEY IS RECEIVED VIA BANKING CHANNELS. 9 UPASNA NITESHBHAI PATEL ADD: 6/B SHREE RAMKRISHNA CO. OP. HOUSING SOC. GITAMANDIR ROAD, NR. SHAHALAM TOLNAKA, AHMEDABAD-380007 BXSPP4647J 100000.00 THE ASSESSEE HAS GIVEN PAN AND ITR ON RECORD AND SOURCE OF INCOME IS SHOWN. MONEY IS RECEIVED VIA BANKING CHANNELS. 10 VASHRAMBHAI PRABHATBHAI PATEL-HUF, ADD: 80, PANKAJ SOC., NR. ANJALI BUS STOP, ANJALI CHAR RASTA, PALDI, AHMEDABAD-380022 AAHHV7763A 100000.00 THE ASSESSEE HAS GIVEN PAN AND ITR ON RECORD AND SOURCE OF INCOME IS SHOWN. MONEY IS RECEIVED VIA BANKING CHANNELS. ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 5 6. On the basis of above details furnished by the assessee, the learned CIT(A) noted that names, addresses, PANs, copies of bank statements, acknowledgement of IT returns, statement of total income and confirmation of ledger accounts were duly furnished by the assessee in respect of all the loan creditors. Relying on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Ranchhod Jivabhai Nakhava, reported in [2012] 208 Taxman 35 (Guj.), he held that the primary onus that lay on the assessee was duly discharged and there was no evidence brought on record by the Assessing Officer to establish that the said loans were bogus. He held that once confirmation of the loan creditors had been filed by the assessee, any action if required was to be taken in the case of loan creditors and not in the case of the assessee. Relying on the decision of Hon’ble Jurisdictional High Court in the case of Rohini Builders Vs. DCIT (supra), he held that source of source or origin of origin cannot be asked from the assessee while making inquiry under Section 68 of the Act. He accordingly deleted the addition of Rs.32,00,000/- made by the Assessing Officer under Section 68 of the Act by treating the unsecured loan to that extent as unexplained cash credits. 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The learned DR has submitted that the bank statements of the concerned loan creditors were not furnished by the assessee during the course of assessment proceedings before the Assessing Officer. However, as rightly pointed out by the learned Counsel for the assessee from the details given on page No.2 of the assessment order, specific observations were made by the Assessing Officer on the deposits found to be made in the bank accounts of the concerned loan creditors which clearly proves that the bank statements of the loan creditors were duly furnished by the assessee before the Assessing Officer. The learned DR has also contended that a very small amount of income was ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 6 declared by all the loan creditors in their returns of income and going by this pattern, the genuineness of the loans become doubtful as rightly held by the Assessing Officer. However, this aspect of the matter alone, in our opinion, cannot disprove the unsecured loans in question received by the assessee; the genuineness of which was duly established by the assessee by filing the confirmation letters, PANs, Income-Tax Returns, bank statements etc. of the concerned loan creditors as rightly held by the learned CIT(A) by relying on the decision of Hon’ble jurisdictional High Court in the case of Ranchhod Jivabhai Nakhava (supra) and Rohini Builders (supra). The primary onus that lay on the assessee to establish the identity and capacity of the concerned loan creditors as well as the genuineness of the relevant loan transactions was duly discharged by the assessee and in the absence of any evidence brought on record by the Assessing Officer to prove to the contrary, the unsecured loans cannot be treated as unexplained cash credits under Section 68 of the Act and the addition made by the Assessing Officer on this issue was unsustainable. In our opinion, the Assessing Officer was not justified to require the assessee to establish the source of source while examining the relevant cash credits representing the unsecured loans and the addition made by the Assessing Officer under Section 68 of the Act by treating the unsecured loan of Rs.32,00,000/- as unexplained cash credits was rightly deleted by the learned CIT(A). In that view of the matter, we uphold the impugned order of learned CIT(A) giving relief to the assessee on this issue and dismiss Ground No.1 of the Revenue’s appeal. 8. The issue raised in Ground No.2 relates to the deletion by the leaned CIT(A) of the addition of Rs.1,32,55,000/- made by the Assessing Officer by treating the capital introduced by the partners of the assessee-firm as unexplained cash credits under Section 68 of the Act. ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 7 9. During the year under consideration, capital of Rs.1,85,75,000/- was introduced in the assessee-firm by its four partners. During the course of assessment proceedings, the issue of introduction of capital by the partners of the assessee-firm was examined by the Assessing Officer; and, on such examination, he found that the source of such capital in the hands of the partners was unsecured loans taken by them from the various parties. He also found that even though PANs and IT returns of such loan creditors were furnished by the assessee, the bank statements of the loan creditors were not furnished. He accordingly held that the initial burden that lay on the assessee to explain the capital introduced by its partners was not discharged satisfactorily to the extent of Rs.1,32,55,000/- and accordingly addition to that extent was made by him to the total income of the assessee under Section 68 of the Act. On appeal, the learned CIT(A) deleted the said addition made by the Assessing Officer under Section 68 of the Act for the same reasons as given while deleting the similar addition made under Section 68 of the Act on account of unsecured loans. 10. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the learned DR has reiterated the submissions made in support of the issue raised in Ground No.1, it is observed that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Gujarat High Court in the case of PCIT vs. Vaishnodevi Refoils & Solvex, [2018] 253 Taxman 135 (Guj.), wherein it was held that when the assessee-firm had furnished details with regard to source of capital introduced by its partners and the partners had also confirmed such contribution, it could be concluded that the assessee- firm had duly discharged the onus cast upon it. It was held that if at all the Assessing Officer was not convinced about the creditworthiness of the partners who had made the capital contribution, enquiry had to be made at ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 8 the end of the partner and not against the firm. Respectfully following this decision of Hon’ble jurisdictional High Court in the case of PCIT Vs. Vaishnodevi Refoils & Solvex (supra), we uphold the impugned order of the learned CIT(A) deleting the addition made by the Assessing Officer by treating the capital introduced by the partners of the assessee-firm as unexplained cash credits under Section 68 of the Act. Ground No.2 of the Revenue’s appeal is accordingly dismissed. 11. The issue raised in Ground No.3 relates to the deletion by the learned CIT(A) of the addition of Rs.4,72,176/- made by the Assessing Officer by way of disallowance under Section 40A(3) of the Act. 12. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has made certain payments exceeding Rs.20,000/-, in a single entry in cash , on account of purchase of diesel aggregating to Rs.4,72,176/-. Since the said payments were made by the assessee in contravention of the provision of Section 40A(3) of the Act, an opportunity was given by him to the assessee to offer its explanation in the matter. In reply, the following explanation was offered by the assessee in writing:- "The activities of the firm is manufacturing of laminate sheet and certain trading (expenses is required to be used day to day the expending of Rs. 472176/- was in nature of purchase of diesel the same was utilized by the firm for the manufacturing purpose in form of fuel. We have to further state that to obtain the diesel this type of facility is far away from the business place hence the firm required to purchase the diesel in high quantity and keep the diesel in stock therefore the firm had purchased the diesel in high quantity therefore this payment was made exceeding the prescribe limit u/s 40A(3), further we have to state that the payment of purchase of this diesel was made out of the income chargeable to tax and such type of facility was not obtained by us it will resulted in our manufacturing process. Further, such type of purchase is not available around the business place of the firm and the same is far away on or about 15 KM from the business place so every day it is not possible to travel 15 KM per day so to remove this difficulties and in the ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 9 interest of the firm this payment was made in cash. The necessary proof of payment of this expenditure was submitted to you. Further the above submission is being a reasonable cause on the part of the firm the payment was made in difference date further the provisions apply to all categories of expenditure involving payments for goods or service, which is deductible in computing the taxable income". "Requirement apply to payments made for goods purchase on credit press note date 02/05/1969 issue by ministry of finance". We have to further state that section 40A(3) money spend on purchase of stock in trade also amount to expenditure. We have cover & support is in u/s 6DD(J) of the Income Tax Act. We have to state that we had proved (a) genuineness of the transaction (b) identity of the payee is satisfied. Further the payment was made & covered by exception circumstances of rule 6DD where the above stated twin conditions were satisfied. The provision of Section 40A(3) and Rule 6DD(i) have been incorporated in the Act in order to check the incurring of bogus and fictitious expenses to non-existing parties, in our case this type of situation is not done. Legal submission & supported case law: (a) Avtarsingh & sons v/s C1T (1992) 61 Taxman 142 (Punj. & Haryana) (b) CIT v/s Chaudhary & Co. (1996) 84 Taxman 495 (Allahabad) (c) CIT v/s Punjab Boot House Ltd (1998) 142 Taxman 770 (MP) (d) Basu Distributors (P) Ltd v/s ACIT (2012) 19 Taxman.com 111 (Delhi) (e) Anupam Tele Services v/s ITO(2014) 43 taxmann.com 199 (Gujarat) Finally we have to state that the cooks of account was audited & No any averse remark pointed by our Auditor. Looking to the above submission both on facts and law you are requested not to make the addition ofRs.4,72,178/- u/s 40A(3) of the IT Act.” 13. The Assessing Officer did not find merit in the submission made on behalf of the assessee and proceeded to make disallowance of Rs.4,72,176/- under Section 40A(3) of the Act by observing as under:- “In the assessee's case, there are so many entries of cash payment, which shows that the assessee regularly made cash payments exceeding Rs.20,000/- by single entry and the assessee firm is habitual to make such payment without considering the norms of provisions section 40A(3) of the Act. Further, the assessee's submission shows that there is no compulsion before the assessee to make such type of payment regularly. As there is no ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 10 circumstances before the assessee to make payment regularly and stances of frequency payment in cash are not covered by exception circumstances of rule 6DD.” 14. On appeal, the learned CIT(A) deleted this disallowance made by the Assessing Officer under Section 40A(3) of the Act by relying on the CBDT Circular No.220 dated 31.05.1997 and clause (j) of Rule 6DD of Income Tax Rules, 1962. 15. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the learned Counsel for the assessee has reiterated before us the submissions made before the learned CIT(A) in support of assessee’s case on this issue that corresponding expenditure incurred on purchase of diesel for generator was a genuine business expenditure incurred by the assessee in the ordinary course of its business, the Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO, reported in [1991] 4 SCC 385, has already clarified that even the genuine expenditures are not taken out of the sweep of Section 40A(3) of the Act. The only way out to get over Section 40A(3) for the assessee is to show that the payments in cash were made in the exceptional circumstances as specified in Rule 6DD of Income Tax Rules, 1962. In this regard, it is observed that no such exceptional circumstance was established by the assessee and although the learned CIT(A) has deleted the disallowance made by the Assessing Officer by relying on CBDT Circular No.220 dated 31.05.1997, there is nothing brought on record by the assessee to establish that the concerned seller of diesel had refused to accept the payments from the assessee by way of crossed-cheque or crossed-draft. There is also nothing on record to establish that the payments in question against the purchase of diesel were made by the assessee in cash to the suppliers who ordinarily was carrying on his business in such village or town which on the ITA No. 1841/Ahd/2018 ACIT Vs. M/s. Kraft Laminate AY : 2015-16 11 date of payment was not served by any bank. As a matter of fact, all these payments aggregating to Rs.4,72,176/- were made by the assessee against the purchase of diesel regularly made throughout the year, apparently from one party, and there is nothing on record to show that the said party always refused to accept the payment by crossed-cheque or crossed draft or that the said party was carrying on the business of sale of diesel in a village or town which was not served by the bank. We, therefore, set aside the impugned order of the learned CIT(A) giving relief to the assessee on this issue and restore the disallowance made by the Assessing Officer under Section 40A(3) of the Act. Ground No.3 of the Revenue’s appeal is accordingly allowed. 16. In the result, the appeal of the Revenue is partly allowed. Order pronounced in the Court on 16 th March, 2022 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 16/03/2022 *Bt /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Ahmedabad, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Ahmedabad