LAKSHMI RAM SHARAN, CHENNAI V. ITO, CORPORATE WARD - 5 (3), CHENNAI

ITA 2271/CHNY/2019

AI Insights

The case involves Lakshmi Ram Sharan, the appellant, contesting several additions made to his income by the Income Tax Officer (ITO) under section 143(3) of the Income Tax Act for the Assessment Year 2011-12. The additions included unexplained cash credits, short-term loans, and the write-off of sundry creditors. The Commissioner of Income Tax (Appeals) upheld these additions, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal examined the evidence and arguments presented, leading to a partial allowance of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133817 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 14-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 08-08-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Depreciation
• Section: 68

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.2271/Chny/2019 (िनधाBरण वषB / Assessment Year: 2011-12) Lakshmi Ram Sharan 271/182, Ankor Manor, P.H. Road, Kilpauk, Chennai – 600 010. बनाम/ V s. ITO Corporate Ward-5(3), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAN P S -2 7 6 2 - C (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri H. Yeshwanth Kumar (CA) – Ld. AR थ की ओरसे/Respondent by : Shri AR. V. Sreenivasan (Addl. CIT) –Ld. DR सुनवाई की तारीख/Date of Hearing : 15-02-2023 घोषणा की तारीख /Date of Pronouncement : 01-03-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2011-12 arises out of the order of learned Commissioner of Income Tax (Appeals)-3, Chennai [CIT(A)] dated 22-01-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 28-02-2014. The grounds raised by the assessee read as under: - 1. For that the order of the Commissioner of Income Tax (Appeals) is without jurisdiction, is contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play. 2. For that the provisions of section 68 are not invocable in the facts and circumstances of the case. 3. For that the Commissioner of Income Tax (Appeals) erred in upholding the addition of credits found in the drawings account amounting to Rs.56,19,500/- to ITA No.2271/Chny/2019 - 2 - income of the appellant as unexplained cash credits. 4. For that that the Commissioner of Income Tax (Appeals) erred in upholding the addition of short-term loans of Rs.27,27,690/- as unexplained credits u/s 68. 5. Further the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of interest paid of Rs.10,000/- on the short-term loans. 6. For that the Commissioner of Income Tax (Appeals) erred in concluding that the appellant failed to prove the identity and credit worthiness of the lender. 7. For that the Commissioner of Income Tax (Appeals) erred in upholding the addition of sundry creditors written off amounting to Rs. 28,08,000/- as the business income of the appellant. 8. For that the appellant objects to the levy of interest under section 234B. PRAYER For these grounds and such other grounds that may be urged before or during the hearing of the appeal it is most humbly prayed that the Hon'ble Tribunal may be pleased to a. Delete the addition of credits in the drawings account of Rs.56,19,500/- as unexplained cash credits. b. Delete the addition of short-term loans of Rs. 27,27,690/- and allow the interest paid for Rs. 10,000/- c. Delete the addition of sundry creditors written off amounting to Rs.28,08,000/-. d. Pass such other orders as the Hon’ble Tribunal may deem fit. As is evident, three issues fall for our consideration i.e., (i) Addition of unexplained cash credit for Rs.56.19 Lacs; (ii) Addition of short-terms loans and interest thereon; (iii) Addition of sundry creditors written-off for Rs.28.08 Lacs. 2. The Registry has noted delay of 132 days in the appeal, the condonation of which has been sought by Ld. AR on the strength of condonation petition which is supported by the affidavit of the assessee. It has been submitted that the assessee was in US from the period 07-12-2018 and returned back on 01-06-2019. Thereafter, the assessee was suffering from viral fever which led to delay in filing the appeal. Considering the contents of affidavit and accompanying evidences, we condone the delay and admit the appeal for adjudication on merits. Having heard rival submissions, the appeal is disposed-off as under. The assessee being resident individual is stated to be ITA No.2271/Chny/2019 - 3 - engaged in providing IT enabled services and BPO services to its customers. 3.1 Addition of unexplained cash credit for Rs.57.69 Lacs During assessment proceedings, it transpired that certain amounts in cash aggregating to Rs.57.69 Lacs were credited on various dates in assessee’s drawings account. Since the assessee could not prove the source of the same, the same were added as unexplained cash credit. 3.2 Addition of short-terms loans and interest thereon The assessee is stated to have received short-term loans in cash from various persons during the year. The same has been tabulated in para 4.1 of the assessment order. The loans were received from 12 parties and aggregated to Rs.27.27 Lacs. Upon verification, it was found that none of the loan creditors had filed its Income Tax Return. The assessee could not prove the creditworthiness and genuineness of the transactions. Accordingly, these loans as well as interest paid on the same were added to the income of the assessee. 3.3 Addition of sundry creditors written-off for Rs.28.08 Lacs. The assessee wrote-off an amount of Rs.28.08 Lacs due to M/s Techno CAD (India) Pvt. Ltd. And the same was reduced from software as reflected in fixed assets. It transpired that the assessee purchased certain software licenses from the vendors in earlier financial years for Rs.38.62 Lacs. The software was not as per assessee’s specification and the same was stated to be not used by the assessee. The vendor locked the software and consequently, the assessee, wrote-off the amount of Rs.28.08 Lacs due against the said vendor. However, the same was added to the income of the assessee for want of evidences. ITA No.2271/Chny/2019 - 4 - 4. During appellate proceedings, the assessee’s submissions were subjected to remand proceedings. Considering the remand report and assessee’s rejoinder, Ld. CIT(A) adjudicated the issues. The credit in drawings account to the extent of Rs.1.50 Lacs was accepted whereas the remaining credit of Rs.56.19 Lacs was confirmed. The loan creditors were examined by Ld. AO however, the loan creditors could not file required details. Accordingly, this addition was confirmed. The addition of amount written-off for Rs.28.08 Lacs was also confirmed for want of evidences. Aggrieved, the assessee is in further appeal before us. 5. With respect to credits in drawings account, Ld. AR has filed working of peak cash credit and submitted that the credits were sourced out of withdrawals made from time to time. We have perused the ledger of drawings account of the assessee. Upon perusal, we find that the withdrawals are for specific purposes only and the withdrawals are numerous and as small as for Rs.200/- which could not be taken to be the source of credits made by the assessee in cash. The credits are of substantial amounts. Thus, we are unable to accept the arguments of Ld. AR in this regard and accordingly, the impugned addition for Rs.56.19 Lacs stand confirmed. 6. Regarding the addition of short-term loans, it could be seen that all the loans have been received in cash and none of the loan creditors has filed Income Tax Returns. The loan creditors have been examined by Ld. AO and these creditors could not file the required details. Even before us, there is no new material to dislodge the findings of lower authorities. Accordingly, this addition is also confirmed. ITA No.2271/Chny/2019 - 5 - 7. The last addition of Rs.28.08 Lacs is amount written-off against software vendors. Upon perusal of ledger of software as produced before us, it could be seen that the assessee has purchased license from the vendor on 25-08-2006 for Rs.38.60 Lacs. The assessee has paid advance of Rs.10.52 Lacs and amount of Rs.28.08 Lacs was outstanding against the vendor. The assessee has not paid the same and accordingly, written-off the balance on 31-03-2011 by reducing / debiting the same against software account. In other words, the sundry creditor balance has been written-off by way of reduction of software account. The same is stated to be in view of the fact that the software was not as per specification and the assessee could not use the same. Upon perusal of depreciation chart, it could be seen that the assessee has not claimed depreciation on software. On the basis of these facts, it could be seen that write-off was nothing but could be considered as the rejection / sales return of the software. The amount written-off could not be considered to be assessee’s income. Accordingly, this addition stand deleted. 8. In the result, the appeal stands partly allowed. Order pronounced on 01 st March, 2023. Sd/- (MAHAVIR SINGH) उपा12 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद9 / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 01-03-2023 EDN/- आदेश की Vितिलिप अ 6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3.आयकर आयु /CIT 4. िवभागीय ितिनिध/DR 5. गाड फाईल/GF