Hareshgiri Pratapgiri Gaushvami, Bhavnagar V. ITO, Ward-2(3), Bhavnagar

ITA 2051/AHD/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3446 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 30-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Gift; Set aside
• Section: 131; 68; 48

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH (Conducted Through Virtual Court) Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Hare shg iri Pratapgiri Gaush vami At- Kuk ad, Vill: Ku kad, Darbar Street, Ta- Ghodha, Bh avnagar PAN: ANEPG70 19E (Appellant) Vs ITO, Ward-2(3), Bhavn agar, Nakubaug, Near Ja sh onath Ch owk , Bhavanag r-36 4001 (Resp ondent) Asses see b y : Shri Pa rimalsingh B. Parmar, A.R. Revenue by : Shri S . H. Solanki, Sr. D. R. Date of hearing : 03-03 -2022 Date of pronouncement : 28-04 -2022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-6, Ahmedabad in Appeal no. CIT(A)-6/305/16-17 vide order dated 20/08/2018 passed for the assessment year 2014-15. 2. The assessee has raised following grounds of appeal:- ITA No. 2051/Ahd/2018 Assessment Year 2014-15 I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 2 “1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of making an addition u/s.68 of the Act when s.68 is not at all applicable to the assessee. 2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO of making an addition of Rs.1,88,50,000/- as unexplained unsecured loan u/s.68 of the Act. 3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the addition made by the AO to the extent of Rs, 12,16,240/- as unexplained cash credits u/s.68 of the Act. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s.271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. Brief facts of the case are that during the year under consideration the appellant purchased several pieces of land for total investment of Rs. 2,09,61,840/-. When asked to explain the source of the same, the appellant submitted that he had taken unsecured loans from relatives and friends and partly made investment from his savings from agricultural I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 3 income. The assessee submitted list of fifteen persons before Ld. Assessing Officer, from whom the assessee had taken loan taken in cash. In order to establish the identity and creditworthiness of the creditors and genuineness of the transaction, the AO issued summons u/s 131 of the Act to all the fifteen (15) creditors. In response to the above summons, twelve (12) male creditors attended before the AO while three (3) female creditors filed affidavit and confirmed the factum of advancing money from agricultural proceeds to the assessee. Ld. Assessing Officer observed that the total amount given by these lenders was Rs. 1,88,50,000/- and required the assessee to explain the source of the balance sum of Rs. 21,11,440/-. The assessee submitted that he is having agricultural land holding from which he is having agricultural income, which is the source of investment of balance amount of Rs. 21,11,440/-. Ld. Assessing Officer rejected the assessee arguments and held that the creditworthiness of lenders is not established and further the assessee has not been able to explain the source of Rs. 21,11,440/- and hence added a sum of Rs. 2,09,61,840/- as undisclosed income of the assessee u/s 68 of the Act. While confirming the addition, Ld. Assessing Officer observed as below: “7.11 On perusal of the statements of 12 male lenders recorded u/s.131(1) of the Act and affidavits filed by 3 female lenders, followings observations were drawn : - (i) The lenders could not produce the sale bills of agricultural produces. (ii) The lenders have first time granted loans to you. I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 4 (iii) The agricultural land holdings of lenders reported hereinbefore are found insufficient to fetch the loan amount granted to you. (iv) The lenders are found to have taken loan from the bank with interest. (v) The lenders are found to have been residing in the houses built with dust. (vi) The lenders have no source of income other than agricultural income. (vii) The lenders have granted loan to you without charging interest. (viii) You have not repaid loans to the lenders till the date. (ix) No formal proof in writing was produced by the lenders establishing the loans having been given by them to you. (x) All the lenders are found to have granted loans to you in cash. (xi) All the lenders have Bank Accounts. ........... Thus, relying upon the observations found hereinabove, it is clear that the assessee is unable to substantiate the Unsecured Loan of Rs. 1,88,50,000/-taken from above mentioned parties attracting the provision u/s.68 of the Act and further an amount of Rs. 21,11,440/- which also remains to be justified convincingly . The assessee has failed to explain source of Rs.2,09,61,440/- (i.e unsecured loan of Rs.1,88,50,000/- + unexplained source of Rs.21,11,440/- = Rs.2,09,61,440/-) as per section u/s.68 of the I.T. Act. Penalty proceedings u/s. 271(l)(c) of the Income tax Act, 1961 is initiated for I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 5 concealment of income/ furnishing inaccurate particulars of income. (Addition of Rs.2,09,61,440/-) 4. In appeal against the assessment order, the Ld. CIT(A) gave part (minor) relief of Rs. 8,95,200/- based on the agricultural income declared by the assessee in his return of income and confirmed the balance additions by holding that the creditworthiness of the lenders does not stand established. While dismissing the assessee’s appeal, Ld. CIT(A) observed as below: “In view of this it is clear that the identity of the creditors is not in doubt. Regarding creditworthiness of the creditors and genuineness of transaction of giving loans to the appellant, it is seen that before the AO all the creditors submitted that they had given loan to the appellant. However, when asked in detail about the source of the same loan, the creditors could not give satisfactory replies. The AO has discussed the replies of the creditors in detail in the assessment order and pointed out several lacunae in the submissions of the creditors and various evidences filed in respect of loans given by them. The appellant at the assessment proceedings stage could not satisfy and refute the allegations of the AO regarding the loans not being genuine. Even at the appellate proceedings stage the appellant has not filed any evidence to show that findings of the AO are not correct. In fact during the appeal proceedings the appellant did not file any submissions except refuting various contentions of the AO. After considering all aspects of this issue and perusing various I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 6 evidences it is held that the evidence filed and statements of the creditors do not inspire confidence to establish the creditworthiness of the creditors and genuineness of the transactions. First and foremost, it is seen that all the loans have been given in cash. A perusal of the amounts of loans as reproduced in the table above would show that the loans are very huge ranging from Rs. 11,00,000/- to Rs. 15,00,000/-. It does not inspire confidence to believe that all these creditors had kept all this huge amount of cash with them at their homes to be able to give the above loans in cash to the appellant. Further, from all the evidence filed, it appears that all the above fifteen (15) persons are not financially well off. They appear to be not very wealthy rather poor people. They all stay in mud houses. The contention of the appellant that in villages it is a practice to stay in mud houses cannot be accepted since a person who can advance a loan of Rs. 15,00,000/- would have certain standard of living. It is not a practice that everybody who can afford but still lives in mud houses in villages and not in pakka houses. Further, the land holdings of these persons are not big enough to inspire confidence that they can give loan ranging from Rs. 11,00,000/- to Rs. 15,00,000/-. Further as per the submissions of the creditors themselves before the AO, they earn about Rs. 3,00,000/- to Rs. 4,00,000/- per annum from their land holdings and they save about Rs. 1,00,000/- to Rs. 2,00,000/- per annum, from the same. Going by even this statement it is quite difficult to believe that such persons can advance loans of amounts ranging between Rs. 11,00,000/- to Rs, 15,00,000/-. Further, no bills for any sale of agricultural products were submitted by these persons. I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 7 Further, as per the submissions of these creditors themselves, they have no other source of income other than agriculture income from their land. In view of discussion above, it is quite clear that though the identity of the creditors is established, however, the creditworthiness of these creditors and genuineness of transactions regarding loans of Rs. 1,88,50,000/- is not established at all. Accordingly, addition made on account of unsecured loans of Rs. 1,88,50,000/- treated as unexplained cash credit u/s 68 of the Act is upheld. This ground of appeal is rejected. ................. The appellant also filed copy of Form 6 regarding land held by the appellant and his mother. The appellant also filed copy of Form 7/12 giving detail of land held and the crops grown on the same. All the above documents were filed as additional evidence. A perusal of the above documents shows that the appellant has considerable land holdings. In view of this the AO was not justified in not giving credit for the agricultural income of Rs. 8,95,200/- declared in the income tax returns. Further, the AO has not bought out any credible argument in support of his finding not to give credit for agricultural income of Rs. 8,95,200/-. The appellant has submitted that he had invested Rs. 21,11,440/- from his personal savings from agricultural income out of total investment of Rs. 2,09,61,840/- made in the I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 8 purchase of land, However, the appellant did not give any evidence in of his explanation for above savings. In view of above discussion the contention of the appellant regarding investment of Rs. 21,11,440/- from his personal savings from agricultural income cannot be accepted in toto. Out of Rs. 21,11,440/-, credit of Rs. 8,95,200/- is given based on the agricultural income declared by the appellant in the return of income. Accordingly, addition to the extent of Rs. 8,95,200/- is deleted. However, the balance addition of Rs. 12,16,240/- is upheld in the absence of satisfactory proof explaining the source of the same. Accordingly, these grounds of appeals are partly allowed. 5. Before us, Ld. Counsel for the assessee submitted that the assessee vide letter dated 25-11-2016 placed on record documentary evidence like confirmation of parties, identity proofs of parties, revenue records substantiating land-holdings of parties etc. Further, summons were issued to lenders, who appeared in person and made statements u/s 131 of the Act. The lenders confirmed the factum of giving loan to the assessee. Further, all lenders had landholdings and this has not been disputed by Ld. Assessing Officer, as apparent from pages 5 to 6 of assessment order. He submitted that the assessee discharged the initial burden cast upon him u/s 68 of the Act. The onus thus has now shifted upon the Revenue. Ld. Counsel for the assessee submitted the assessee is not required to prove ‘source of source’ of the receipt. Hence, no addition is called for in view of various decisions cited before us inter-alia DCIT v. Rohini Builders I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 9 256 ITR 360 (Guj), Murlidhar Lahorimal v. Ld. CIT(A) 280 ITR 512 (Guj) etc. in support of his argument that the assessee is not required to prove ‘source of source’ of receipts. As regards, the addition of Rs. 21,11,440/- Ld. Counsel for the assessee submitted that the assessee inherited jewellery and cash of Rs. 20,78,300/- on demise of his father and invited our attention to pages 249-250 of Paper-Book. He further submitted the assessee has been earning agricultural income of about 3 to 4 lakhs per annum for last several years and invited our attention to pages 251-252 of Paper-Book in support of the above contention. Therefore, it is evident that the assessee has sufficient past savings to the tune of Rs. 21,11,440/- from agricultural income. Hence, Ld. CIT(A) ought to have deleted the entire addition of Rs. 21,11,440/- rather than restricting it to Rs. 12,16,240/- after giving set-off of agricultural income of Rs. 8,95,200/- earned during the impugned year. In response, Ld. Departmental Representative placed reliance on the observations of Ld. CIT(A) and assessment order in their respective orders. 6. We have heard the rival contentions and perusal the material on record. We shall first deal with the issue whether learned CIT(A) has erred in the facts of the case in confirming the addition made by the AO to the extent of Rs, 12,16,240/- as unexplained cash credits u/s.68 of the Act. In our view, the assessee has been able to reasonably demonstrate that he has substantial landholding capable of earning regular agricultural income and also received a sum of Rs. 20,78,300/- by way of cash and jewellery from his father. This fact was also affirmed by the village I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 10 Panchayat. The assessee also produced inheritance certificate in support of the above contention as proof of inheritance of the above sum. Further, vide Panchrojkam dated 09-01-2018, the Talati cum Mantri of Kukad Gram Panchayat gave a declaration that the assessee is owner of considerable landholding from which yearly income is Rs. 3 to 4 lakhs. The assessee also filed copy of Form 7/12 giving details of landholding and details of crop grown on the same. The Ld. CIT(A) made a specific note of these facts in the appellate order and Revenue has not challenged the above facts stated by the assessee. Even during the impugned assessment year, the assessee has declared agricultural income of Rs. 8,95,200/-. Thus, in our view, the assessee has been able to demonstrate ability to invest the sum of Rs. 21,11,440/- from his personal savings to buy the immovable property. 7. Now, we shall discuss whether CIT(A) has erred in law and on the facts of the case in confirming the action of AO of making an addition of Rs.1,88,50,000/- as unexplained unsecured loan u/s.68 of the Act in respect of loan taken from lenders. In our considered view, the assessee though has been able to establish the identity of creditors / lenders, but has not been able to establish their creditworthiness. The Courts have taken a consistent position that the assessee is expected to establish proof of identity of creditors, capacity of creditors and genuineness of creditors in order to discharge onus cast on assessee. Mere production of parties or confirmation from parties will not suffice, unless the assessee is also able I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 11 to substantiate their creditworthiness i.e. ability to advance the sum to the assessee. 7.1 The Supreme Court of India in the case of Sadiq Sheikh v Commissioner of Income Tax, Bangalore [2021] 124 taxmann.com 202 (SC) dismissed SLP against High Court ruling that where Tribunal deleted addition under section 68 made to assessee's income on account of cash receipts in its bank account by accepting assessee's explanation that said amount was transferred in his bank account from out of bank accounts of his brother-in-law and a close friend, since Tribunal ignored vital fact emanating from record that said creditors had not produced evidence to establish their capacity to raise such a huge amount, its order was to be set aside. The facts of the case were that the Assessing Officer made certain addition owing to unaccounted cash receipts on ground that assessee failed to establish identity and creditworthiness of creditors from whom he had received a huge amount of Rs. 8.49 crores. On appeal, Tribunal accepted assessee's explanation that said amount was transferred into its bank account from out of bank accounts of his brother- in-law and a close friend and, further, that said creditors confirmed to have made payment to assessee. On basis of above, Tribunal held that identity of source was thus established and requirement of section 68 was proved beyond any doubt by assessee and, therefore, addition made by Assessing Officer was not sustainable. High Court held that since Tribunal ignored vital facts emanating from record that said creditors had not produced evidence to establish their capacity to I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 12 raise such a huge amount and also that they were not clear about their precise role in transaction involving said amount, its order was to be set aside. High Court further held that creditors admitting that they had made payments to assessee was not sufficient to discharge burden placed on assessee by section 68. The Hon'ble Supreme Court dismissed the SLP filed against the order of High Court. 7.2 Again, the Supreme Court in the case of Sunil Thomas v, ITO [2021] 127 taxmann.com 275 (SC) dismissed SLP against High Court ruling that where donor (creditor) who was assessee's brother, apart from furnishing his employment particulars and confirming gift, couldn't explain genuineness of transactions or his creditworthiness by proving his monetary ability to make such gifts of substantial amount, gift amount was to be treated as undisclosed income. The facts of this case were that assessee claimed to have received gift from his NRI brother. The Assessing Officer treated it as assessee's undisclosed income on ground that same was not real and genuine. The Assessee's brother, apart from furnishing his employment particulars, confirmed gift that he had made. However, assessee's brother didn't make any endeavour to explain genuineness of transactions or his creditworthiness by producing necessary documents proving his monetary ability to make such gift of substantial amount. 7.3 The Hon'ble Supreme Court in the case of Pr. CIT v NRA Iron & Steel (P.) Ltd [2019] 103 taxmann.com 48 (SC) held that that where I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 13 assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company. 7.4 The High Court of Andhra Pradesh in the case of Gayathri Associates [2014] 41 taxmann.com 526 (Andhra Pradesh) has held that Identity, creditworthiness and genuineness of transaction is not established merely by filing bank account details. 7.5 The High Court of Allahabad in the case of Sagittraious Builders & Colonisers 2012] 17 taxmann.com 198 (Allahabad)/[2012] held that not only the identity of parties, but their creditworthiness also needs to be established by the assessee. 7.6 The Pune ITAT in the case of Sanjay Waman & Co. [2002] 81 ITD 1 (Pune) (TM) held that it is part of the duty of the assessee to furnish evidence regarding the creditworthiness of the creditors. 7.7 The Delhi ITAT in the case of Anandtex international (P.) Ltd. v. ACIT [2022] 137 taxmann.com 146 (Delhi - Trib.) held that where assessee received share application money and claimed that same was invested by its director by taking advance from a company P, however assessee failed to establish creditworthiness of share applicant or I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 14 genuineness of transaction, AO was justified in making additions under section 68 and concluding that assessee routed its own money in books of account through conduit of investor companies. 7.8 Now, in the instant facts, in our view, the assessee has not been able to establish the creditworthiness of lenders nor has he been able to establish the genuineness of transaction. The lenders could not produce bills of agricultural produce, landholdings have been found to be insufficient to enable the lenders giving loan ranging from Rs. 11 lakhs to Rs. 15 lakhs to the assessee, the lenders are residing in mud houses, the lenders have granted loan in cash, land owned by the lenders are under charge of concerned banker against loan taken by them, the lenders are first time lenders who have given Rupees 11 lakhs to 15 lakhs without charging any interest from the assessee, the assessee has not repaid the loan till date back to the lenders, at the time of giving loan there was no proof in writing to the effect that such a huge loan and purpose why such loan was given to the assessee- all these facts raise serious doubt both on the creditworthiness of the parties and genuineness of the transaction. Therefore, in our considered view, since the assessee has failed to establish the creditworthiness of parties, he has not been able to discharge the onus cast upon him u/s 68 of the Act. Therefore, we are of the considered view that Ld. CIT(A) has not erred both in law and on the facts of the case in confirming the action of AO of making an addition of Rs.1,88,50,000/- as unexplained unsecured loan u/s.68 of the Act in respect of loan taken from lenders. I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 15 We shall now come to Grounds of Appeal raised by the assessee. 8. Grounds 1, 4, 5 and 6 are General and do not require any specific adjudication. 9. Ground No. 2: The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO of making an addition of Rs.1,88,50,000/- as unexplained unsecured loan u/s.68 of the Act. 10. In our view, the assessee has failed to establish the creditworthiness of parties. Therefore, we are of the considered view that Ld. CIT(A) has not erred in law and on the facts of the case in confirming the action of AO of making an addition of Rs.1,88,50,000/- as unexplained unsecured loan u/s.68 of the Act in respect of loan taken from lenders. 11. Ground No. 2 of the assessee’s appeal is dismissed. 12. Ground No. 3: The learned CIT(A) has erred both in law and on the facts of the case in confirming the addition made by the AO to the extent of Rs, 12,16,240/- as unexplained cash credits u/s.68 of the Act. 13. In our view, the assessee has been able to demonstrate ability to invest the sum of Rs. 21,11,440/- from his personal savings to buy the immovable property. I.T.A No. 2051/Ahd/2018 A.Y. 2014-15 Page No. Hareshgiri Pratapgiri Gaushvami vs. ITO 16 14. Ground No. 3 of the assessee’s appeal is allowed. 15. In the result, the appeal of the assessee is partly allowed Order pronounced in the open court on 28-04-2022 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 28 /04/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद