V.VEERASEKAR, CHENNAI V. ITO NON CORPORATE WARD-2(2), CHENNAI

ITA 2081/CHNY/2019

AI Insights

The case revolves around an appeal by Shri V. Veerasekar against the order of the Commissioner of Income Tax (Appeals)-2, Chennai, which confirmed the additions made by the Income Tax Officer, Non-Corporate Ward 2(2), Chennai. The additions were made on account of a non-existing liability treated as unexplained cash credit under section 68 and as cessation of liability under section 41(1) of the Income Tax Act, 1961. The primary contention was regarding the amount of Rs.1,06,40,000 received by the assessee, which was alleged to be from a non-existent entity, M/s. Trimex, and used for property purchase. The Tribunal noted the lack of clarity from the Revenue on the nature of the transaction and the applicable provisions, leading to the decision in favor of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134835 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 11-07-2019
• Other Referred Cases: CIT vs. T.V.Sundaram Iyengar & Sons Ltd., (SC) 222 ITR 344
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income
• Section: 68

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी जी. मंजुनाथ, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2081/CHNY/2019 िनधाᭅरण वषᭅ/Assessment Year: 2015-16 Shri V. Veerasekar, No.16A, Lady Desika Road, Alwarpet, Chennai – 600 004. PAN: AKDPV 9253D vs. The Income Tax Officer, Non-Corporate Ward 2(2), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri D. Anand, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri AR. V. Sreenivasan, Addl.CIT सुनवाई कᳱ तारीख/Date of Hearing : 05.01.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 11.01.2023 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-2, Chennai in ITA No.69/2017-18 dated 12.04.2019. The assessment was framed by the Income Tax Officer, Non-Corporate Ward 2(2), Chennai for the assessment year 2015-16 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 15.12.2017. 2 ITA No. 2081/Chny/2019 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO by making addition of non-existing liability as unexplained cash credit u/s.68 of the Act as well as u/s.41(1) of the Act as cessation of liability. For this, assessee has raised various grounds but relevant ground is Ground Nos.2, 3 & 4 as under:- 2. The learned Commissioner of Income Tax (Appeals)-2 erred in sustaining the addition made on account of non existing liability as unexplained credits when there was no such liability existing as per the books of accounts. 3. The learned Commissioner of Income Tax (Appeals) – 2 erred in not understanding the nature of transaction undertaken with the alleged party. 4. The learned Commissioner of Income Tax (Appeals) – 2 erred in not appreciating the confirmation and return of income submitted by Mrs. Kavitha for the relevant assessment year. 3. Brief facts are that the assessee is engaged in the business of money lending. The assessee filed his return of income for the relevant assessment year 2015-16 on 29.08.2015 and accordingly, assessee’s case was selected for scrutiny assessment under CASS under the limited scrutiny category i.e., for purchase of property. The number of facts discussed by the AO in his order at para 8 & 9 are that the AO while going through the ledger account of M/s. Trimex, it is noted that in the account of Shri V. Veerasekar, the assessee, an amount of Rs.2,02,80,000/- including opening balance 3 ITA No. 2081/Chny/2019 of Rs.96.40 lakhs is payable to M/s. Trimex. He noted that during the relevant financial year 2014-15 relevant to this assessment year 2015-16, an amount of Rs.1,06,40,000/- was received by the assessee. He noted that this amount was utilized by the assessee for purchase of property as loan from Smt. Kavitha who is proprietor of M/s. K.K. Enterprises. He noted that the assessee could not adduce any evidence that the said amount was really received from M/s. Trimex and no return of income was filed by this company for assessment year 2014-15 to 2016-17 and no cross verification of genuineness of the above loan amount is possible and hence, he added this amount of Rs.1,06,40,000/- received during the year as unexplained income u/s.68 of the Act. The AO also noted that this amount to due to M/s. Trimex could not be treated as no longer payable as the company is non-existent and also treated the same as cessation of liability u/s.41(1) of the Act. For this AO recorded his findings in para 9 & 10 as under:- “9. In the absence of any proof or evidence, that the said amount was really received from M/s. Trimex, also no return of income was filed by the company M/s.Trimex for the assessment year 14-15 to 16-17 to cross verify the genuineness of the above loan amount, which was given to the assessee, the company is not existing in the address given in the return of income, I have no other way except to conclude that the amount of Rs.1,06,40,000/- received during the assessment year, and the same is treated as unexplained income of the assessee u/s 68 of the Act. 10. As already discussed in the foregoing paras, the amount due to M/s.Trimex could also be treated as no longer repayable as the company is 4 ITA No. 2081/Chny/2019 non-existent, coupled with no confirmation letter received from the said company, the amount to be repayable could also be treated as cessation of liability and accordingly also disallowable u/s 41(1) of the Act.” Aggrieved assessee preferred appeal before CIT(A). 4. The CIT(A) also confirmed the action of AO first of all for the reason that Trimex Resource Pvt. Ltd., is not filing returns of income and hence, it is not proved that the same amount received on account of sum payable to Smt. Kavitha, who is wife of the assessee. According to him, in such circumstances independent verification cannot be done even though, there is confirmation from Smt. Kavitha. Hence, the CIT(A) stated that the assessee failed to prove the actual source of funds for purchase of property which were accumulated funds from movable source for which a sum of Rs.1,06,40,000/- was from Smt. Kavitha who after taking the loan from Trimex Resources Pvt. Ltd. The CIT(A) also confirmed the addition u/s.68 as well as u/s.41(1) of the Act and also he invoked the provisions of section 28(iv) of the Act by relying on the decision of Hon’ble Supreme Court in the case of CIT vs. T.V.Sundaram Iyengar & Sons Ltd., (SC) 222 ITR 344. Aggrieved, assessee came in appeal before Tribunal. 5 ITA No. 2081/Chny/2019 5. We have heard rival contentions and gone through facts and circumstances of the case. We noted that neither AO nor CIT(A) is sure whether this is a transaction of unexplained loan or credit or this is a cessation of liability to be added u/s.41(1) of the Act or it is a business receipt to be added u/s.28(iv) of the Act, as noted by CIT(A). The assessee contended and produced ledger account of Trimex Resources Pvt. Ltd., wherein it is found that total amount in the account of Shri V. Veerasekar, the assessee is Rs.2,02,80,000/-. Out of this, there is opening balance of Rs.96.40 lakhs which pertains to earlier year. During the year the assessee received a sum of Rs.1,06,40,000/- as confirmation filed by assessee and this entry has routed through banking transactions and none of the authorities below i.e., CIT(A) or AO could not understand the nature of transaction and treated that as cessation of liability u/s.41(1) of the Act as well as unexplained credit u/s.68 of the Act. The CIT(A) moved a further step and treated this amount as profit chargeable to tax u/s.28(iv) of the Act as profits and gains of business or profession in view of decision of Hon’ble Supreme Court in the case of T.V.Sundaram Iyengar & Sons Ltd., supra. Admittedly, this is a simple transaction of loan received by assessee’s wife Smt. Kavitha in the books of Trimex Resources Pvt. Ltd., and therefrom she has advanced this amount and assessee is able to prove the sources by 6 ITA No. 2081/Chny/2019 filing confirmation from the third party and assessee’s wife, although Trimex Resources Pvt. Ltd., does not file return of income for these years i.e. assessment year 2014-15 to 2016-17. But the AO has not taken any step to verify from the accounts of the company. In our view, the Revenue is not clear under which provisions this addition is to be made and hence, once this is not established the addition cannot be sustained. We delete the addition and allow the appeal of assessee. 6. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 11 th January, 2023 at Chennai. Sd/- Sd/- (जी. मंजुनाथ) (G. MANJUNATHA) लेखा सद᭭य/ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 11 th January, 2023 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकरआयुᲦ (अपील)/CIT(A) 4. आयकरआयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.