ITO, Ward-1, Pali V. Shri Manish PJain, Pali

ITA 187/JODH/2019

AI Insights

The case revolves around an appeal by the Income Tax Officer (ITO), Ward-1, Pali against the order of the CIT(A)-1, Jodhpur, which had deleted the additions made by the ITO under section 68 of the Income Tax Act for the assessment year 2013-14. The additions were initially made due to the assessee's failure to provide adequate proof of the identity and creditworthiness of the creditors from whom unsecured loans were taken. However, during the appellate proceedings, the assessee provided additional evidence, which was verified by the ITO in the subsequent assessment year, leading to the deletion of the additions by the CIT(A). The Tribunal, after reviewing the remand report and the additional evidence, concurred with the CIT(A)'s decision and dismissed the Department's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108342 (ITAT-JODHPUR)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 22-05-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Additional evidence; Assessment record
• Section: 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND Dr. S. SEETHALAKSHMI, JUDICIAL MEMBER ITA No. 187/Jodh/2019 (ASSESSMENT YEAR- 2013-14 ) The ITO Ward-1, Pali Vs Shri Manish P Jain 201, Landmark Society J.P. Road, Andheri West, Mumbai-400058 (Appellant) (Respondent) PAN NO. AJCPJ 5271 F Assessee By Shri Gautam Chand Baid, CA Revenue By Ms. Nidhi Nair, JCIT-DR Date of hearing 20/01/2023 Date of Pronouncement 05/04/2023 O R D E R PER: Dr. S. SEETHALAKSHMI, JM The Department has filed an appeal against the order of the ld. CIT(A)-1, Jodhpur dated 6-03-2019 for the assessment year 2013-14 wherein the Department has raised the following grounds of appeal. ‘’1. The ld. CIT(A) erred on facts of the case by granting relief for A.Y. 2013-14 considering the report submitted by 2 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI the AO pertaining to findings of A.Y. 2014-15 whereas no details were furnished and no investigation was made for A.Y. 2013-14 as per the remand report. 2. That the ld. CIT(A) erred on facts by accepting the confirmations filed by the assessee before the ld. CIT(A) for the first time as additional evidences as sufficient proof to accept the genuineness of the creditors without the assessee furnishing further details like return of income, bank statements, balance sheet and capital account, ledger of creditors etc. to establish creditworthiness of the person advancing loans. 3. The assessee had filed PAN numbers of some of the creditors and on verification from the system, it is seen that many of creditors had given loan for in excess of the income disclosed which makes creditworthiness of the persons very suspicious. Thus, the ld. CIT(A) erred in deleting the addition made u/s 68 without ensuring complete enquiry in the case.’’ 2. The only issue urged in this appeal relates to the addition of cash credits made u/s 68 of the Act and consequent disallowance of interest expenses relating to the above stated cash credits. 3. The facts relating to the above said issue are discussed in brief. The AO, during the course of assessment proceedings, noticed that the assessee had shown unsecured loans balances to the tune of Rs,3,50,06,489/- in theBalance sheet. It is also noted that the assessee furnished list of 285 parties from whom the assessee had transactions related to unsecured loans showing opening balance, debit/ credit during the year and closing balance. During the year under consideration, the assessee had taken unsecured loans of Rs.4,59,89,090 from the parties as mentioned at pages 2 to 6 of the assessment order, for which the 3 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI AO asked the assessee to submit the loan confirmations to prove identity/ genuineness and creditworthiness of the loan parties, vide order sheet entries dated 11-02-2016, 18-02-2016 and 24-02-2016. The AO noticed that the assessee furnished a list of 62 parties showing PAN of 60 parties from whom the assessee had taken loan and the assessee had furnished only the confirmations from 24 parties out of 285 parties and that too without bank pass book / statement, copy of ITR balance sheet/ statement of affairs. The AO also gave further opportunities to prove the cash credits. Since the assessee did not furnish further information, the AO assessed the amount of Rs.4,59,89,090/- received from loan creditors as unexplained cash credit u/s 68 of the Act. Consequent thereto, the AO also disallowed interest expenses amounting to Rs.56,10,355/- relating to the above said loans. 4. In the appeal filed by the assessee, the ld. CIT(A) deleted both the additions. It is pertinent to note that the assessee has furnished certain additional evidences and hence the Ld CIT(A) called for a remand report from the assessing officer. In the remand report, the AO has stated that he has verified the creditors during the assessment proceedings relating to the subsequent years, i.e., the fresh cash credits taken during the financial year relevant to AY 2014-15 and also brought forward cash credits. The AO accordingly stated that he was satisfied with the cash credits. Accordingly, the 4 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI Ld CIT(A) deleted both the disallowances. The decision rendered by Ld CIT(A) are extracted below:- ‘’5.2. I have carefully considered the assessment order, appellant's submissions and documents on record. The assessee could not establish the identity and creditworthiness/ capacity of the creditors and genuineness of transactions during the course of assessment proceedings. Thus the AO treated the unsecured loan of Rs. 4,59,89,090/- received by the assessee as unexplained cash credits u/s 68 of the Act and interest of Rs. 56,10,355/- paid/credit to creditors were disallowed by the AO. During the course of appellate proceedings the AR of the appellant vehemently contested this action of AO and submitted the confirmations of the creditors along with ledger, bank statement and return of income and requested to entertain the same as additional evidence under Rule 46A of the IT. Rules, 1962. Following the principle of natural justice, additional evidences were admittedand forwarded to the AO calling for his report after making verifications/inquiry. The AO vide report dated 02.01.2019 has submitted asbelow:- "(i) That addition of Rs 4,59,89,090/- has been made by Ld. AO treating loan received during the year under consideration from 175 parties as unexplained cash credit u/s 68 In this regard, it is submitted that first of all, the then AO sent the notices on the address of the assessee which was not served upon the assessee and the same was returned unserved with the postal remarks Left, placed on records. Finally. the said notice was received by the AR of the assessee Shri Davesh Jain, who received the notices on 05.02.2016 for the first time and complied with the notices. The date of hearing in his case was fixed on 11.02.2016 On 11.02.2016, the A/R of the assessee furnished a reply to the queries which was requisitioned by the then AO in his notice, placed on records. Subsequently, the case was adjourned on various dates and the A/R of the assessee submitted the submission on these dates as per the queries raised by the then AO in the said notice. During the course of assessment proceedings and perusal of the note sheet available on records, it is seen that the assessee took unsecured loans from various parties and the interest was paid in respect of the unsecured loans. To prove the creditworthiness, genuineness and identity of these unsecured loans, the A/R of the assessee would have furnished confirmations in respect of unsecured loans to the then AO but the A/R of the assessee was not able to furnish all confirmations with regard to unsecured loans taken in the year under consideration. Further, while framing the assessment order, confirmations were not submitted by the A/R of the assessee. In such circumstances, the then AO had left with no other alternative 5 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI but to add amount of all unsecured loans except the confirmations submitted in some of the cases. Hence, an addition of Rs. 4,59,89,090/- was made by the then AO. In addition thereto, the interest which was paid on unsecured loans were also added by the then AO while passing assessment order for AY 2013- 14. Thus, the total addition of Rs. 5,15,99,445 (Rs. 4,59,89,090 plus Rs. 56,10,355) was made by the then AO (ii) That the addition was made on the finding that the assessee could not confirm the transaction from the parties from whom he claims to receive the amount and not prove identity of such parties. On perusal of the assessment records, it is revealed that the A/R of the assessee has not submitted complete confirmations in respect of unsecured loans taken during the year under consideration due to large number of persons from whom confirmations in respect of unsecured loans were to be collected but due to Sy of time, the same could not be collected. Hence, the same were added to the total income of the assessee (iii) That in this reference it is to submit that because of low duration in which assessment proceedings carried out and situation of parties it was not possible to submit confirmation of all parties before ld. AO. On perusal of the assessment records, it is revealed that the A/R of the assessee was not submitted complete confirmations in respect of unsecured loans taken during the year under consideration due to large number of confirmations, which were not submitted at the time of assessment proceedings. In this situation, the then AO had left with no other alternative but to add the amount of unsecured loans being treated as unexplained cash credit in the hands of the assessee and complete the assessment proceedings. Hence, the same were added to the total income of the assessee. (iv) That the first notice seeking general queries was issued by Id. AO on 05.02.2016 in which details on 14 points sought for On perusal of the assessment records, it is revealed that the then AO issued notice u/s 142(2) of the IT Act, 1961 mentioning therein 15 queries instead of 14. For these queries, the time allotted for furnishing the reply by the assessee is too short i.e. within one week so he could not be able to furnish the reply in time. (v) That first specific notice in this reference was issued on 18.02 2016 and assessment has been completed on 21.03 2016. In this short period it was not possible to got confirmation from all the parties. In such period with best effort confirmation from all the parties. In such period with best effort confirmation from 24 parties and PAN of about 60 parties has been furnished before ld. AO. On perusal of the assessment records, it is true that the first notice was issued on 18.02.2016 and the assessment was completed on 21.03.2016. Further, it is submitted that in such a short period of time, the A/R of the assessee could not furnish all the confirmations in respect of 285 parties from whom the assessee arranged to get an amount on account of unsecured loans 6 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI on interest. It is also a factual position that the then AO was not given proper opportunity and time to furnish all the confirmations in respect of unsecured loans taken by the assessee. if the assessee would have furnished all the confirmations well in time, then the addition on this account would have not been done (vi) That 1d. AO disallowed interest amounting to Rs. 55,10,355 paid by assessee to 285 parties without any specific notice for the same. The only reason for the disallowance is non submission of confirmation and PAN detail On perusal of the assessment records, it is true that the then AO disallowed interest amounting to Rs. 56, 10,355/- paid by the assessee to 285 parties without notice for the same. Further, when the assessee was not furnished the confirmations in respect of unsecured loans taken by him, then it is understood that interest on unsecured loans would have added to the total income of the assessee.. (vii) That considering above factual position it is respectfully requested to kindly admit the confirmation of all parties for which Id. AO made addition and/or disallowed interest expense claimed by assessee. Confirmation has been annexed herewith along with summary thereof and marked as Annexure- l. Confirmations in respect of unsecured loans have been received from the assessee marked as Annexure-l Sir, I have gone through the list of confirmations which the assessee submitted during the course of appellate proceedings in your office. Also, I have verified the creditworthiness, genuineness and identity of the unsecured loans and found that most of the unsecured loans were taken were taken by the assessee locally and some of outside Pali Further, it is also submitted that the assessee's case for AY 2014-15 was selected under CASS with the reason that Large increase of unsecured loans during the year and (8) Gross interest shown in schedule OS of ITR is less than interest receipts reported in 26AS. After verifying the reasons as mentioned above, the case was completed by the undersigned on a returned income (in this case also, unsecured loans either taken by the assessee or brought forward from the previous year by the assessee in the year under consideration were examined. In response, the A/R of the assessee furnished all the confirmations with regard to unsecured loans either taken or brought forward from the previous year has duly been verified and appeared to be genuine. Also, it is noticed that the unsecured loans were more or less the same as shown in the previous year. In view of the above facts and circumstances of the case, it is recommended that the unsecured loans which were taken by the assessee in the year under consideration are genuine and the creditworthiness, genuineness and identity of such unsecured loans have been examined and verified with a view that nothing is noticed adversely by the undersigned." 7 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI The AO examined/ verified the evidences furnished by the appellant, and submitted that nothing has been noticed adversely by him. The AO made the addition u/s 68 of the act on the basis that the identity and creditworthiness of the creditors and genuineness of transaction had not been proved during the assessment proceedings. Now, identity and creditworthiness of creditors and genuineness of transaction has been established. The appellant had discharged his onus by proving the existence of the creditors and the creditors having accepted her deposits with the appellant, it was not further required to prove source of source. The limbs within the meaning of section 68 of the Act have been established therefore, the addition made on this account cannot be sustained. Accordingly, the addition of Rs. 4,59,89,090/- made by the AO on account of unexplained cash credit is deleted hereby. Further the interest of Rs. 56,10,355/- paid/credit to creditors is also hereby allowed. The appellant succeeds on this issue accordingly, ground Nos. 4 to 9 are allowed hereby.’’ 5. During the course of hearing, the ld. DR supported the order of the AO and submitted that the Ld CIT(A) has deleted the addition on the basis of investigation carried out by the AO in the succeeding year, i.e., AY 2014-15, while the assessee has failed to discharge the burden in the current year. 6. On the other hand, the ld. AR of the assessee submitted that the AO, during the course of assessment proceedings relating to AY 2014-15, has examined all the cash credits, i.e., both fresh cash credits and that were brought forward from earlier year and was satisfied with both types of cash credits. The assessee has also furnished the details of cash credits before Ld CIT(A) as additional evidences. The AO, in his remand report, has mentioned that he was satisfied with the cash credits taken in AY 2013-14, since all the cash credits 8 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI were examined by him in the succeeding AY 2014-15. Since the AO himself has reported in the remand report that he was satisfied with the cash credits, the Ld CIT(A) has deleted the addition/disallowance. Accordingly, he submitted that the order so passed by Ld CIT(A) does not call for any interference. 7. We have heard both the parties and perused the materials available on record. The crux of the issue in this case is that the AO made disallowance of Rs.4,59,89,090/- on account of unexplained cash credit u/s 68 of the Act and also disallowance of interest expenses amounting to Rs.56,10,355/-. The AO initially made the additions cited above on the reasoning that the assessee has failed to prove all the cash credits. The assessee has, however, furnished the details as additional evidences before Ld CIT(A) and hence the Ld CIT(A) has called for a remand report from the AO. The remand report furnished by the AO has been extracted by Ld CIT(A) in his order and the said order has been extracted by us in the preceding paragraphs. A perusal of the remand report would show that the AO has examined the additional evidences furnished by the assessee and also reported that he has verified all cash credits in the succeeding assessment year 2014-15, i.e., both fresh cash credits taken in that year as well as cash credits brought forward from the earlier years. Since the AO himself has accepted the cash credits in the remand report, the Ld CIT(A) has deleted the addition made u/s 68 of the Act and also deleted the disallowance of consequential interest, i.e., the assessing officer, who has made the impugned 9 ITA NO.187/JODH/2019 ITO, WARD -1, PALI VS SHRI MANISH P JAIN, PALI additions, himself has reported in the remand report that he was satisfied with the cash credits. Hence there is no scope for making addition and disallowance referred above and accordingly, we are of the view that the Ld CIT(A) was justified in deleting both the additions. 8. In the result, the appeal of the Department is dismissed. Order pronounced on 05/04/2023 under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 Sd/- Sd/- (B. R. BASKARAN) (Dr. S. SEETHALAKSHMI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 05/04/2023 *Mishra Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) Asstt. Registrar 5. The DR 6. Guard File Jodhpur Bench