The ITO, Ward-3(2), JAMNAGAR V. Shri Shantaben Shankarlal Chhaparwal, JAMNAGAR

ITA 374/RJT/2011

• Counselvise Citation: 37424914 RSA 2011
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Gross profit estimation; Unexplained cash credit; Commercial expediency; Onus to prove
• Section: 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K . SRIVASTAVA, AM ITA NO. 374/RJT/2011 / ASSESSMENT YEAR 2008-09 ITO., WD.-3(2) V. SHANTABEN SHANKARLAL CHHAPAR WAL JAMNAGAR. PROP. SHREEJI SALES CORP., MUSIC HOUSE, PARK COLONY JAMNAGAR. PAN: ACQPC.3895H . DATE OF HEARING : 01-05-2012. DATE OF PRONOUNCEMENT : 22-05-2012. REVENUE BY: SHRI M. K. SINGH, D.R ASSESSEE BY: NONE / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 15-07-2011. THE APPEAL RELATES TO ASSESSMENT YEAR 2008-09. 2. NOTICE OF HEARING WAS SENT BY RPAD FIXING THE AP PEAL FOR HEARING ON 01-05- 2012. ACKNOWLEDGMENT SLIP EVIDENCING SERVICE OF NOT ICE OF HEARING ON THE ASSESSEE HAS BEEN RECEIVED FROM THE POSTAL AUTHORITIES. DESP ITE SERVICE OF NOTICE OF HEARING BY RPAD, THE ASSESSEE HAS NEITHER ENTERED APPEARANC E NOR FILED ANY APPLICATION FOR ADJOURNMENT. IN THIS VIEW OF THE MATTER, THE AP PEAL FILED BY THE DEPARTMENT IS BEING DISPOSED OFF EX-PARTE QUA THE ASSESSEE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS ENGAGED IN HER BUSINESS THROUGH TWO PROPRIETORSHIPS CONCERNS; NAME LY, MUKESH TRADE LINK, WHICH WAS ENGAGED IN THE TRADING OF AGRICULTURAL MACHINER Y & EQUIPMENTS, PIPES & PUMPS ETC., AND M/S SHREEJI SALES CORPORATION, WHICH WAS ENGAGED IN TRADING OF FERROUS & NON-FERROUS METALS. SHE FILED HER RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 30- 09-2008 RETURNING HER TOTAL INCOME AT RS. NIL. AFT ER PROCESSING, THE RETURN WAS SELECTED FOR A SCRUTINY AS A RESULT OF WHICH ASSESS MENT WAS COMPLETED ON 24-12- 2010 ASSESSING HER TOTAL INCOME AT RS.43,24,600/-. ADDITIONS/DISALLOWANCE MADE BY THE AO ON ACCOUNT OF LOW GROSS PROFIT (RS.23000/); DISALLOWANCE OF INTEREST (RS.1,92,536/-, UNEXPLAINED CASH CREDIT (RS.30,40,0 00/-) AND INTEREST THEREON (RS.1,45,860/-) WERE DELETED, ON APPEAL, BY THE CIT (A). AGGRIEVED BY THE ORDER OF THE CIT(A) DELETING THE AFORESAID ADDITIONS/DISALLO WANCES, THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 4. GROUND NO.1 TAKEN BY THE DEPARTMENT READS AS UND ER:- 2 ITA 374/RJT/2011 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.23000/- MADE BY THE AO ON ACCOUNT OF LOW GP, REL YING UPON THE DECISION OF THE JURISDICTIONAL ITAT IN SIMILAR SET OF FACTS. 5. THE IMPUGNED ADDITION WAS MADE BY THE AO WITH TH E FOLLOWING OBSERVATIONS:- 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTICED THAT THE ASSESSEES NATURE OF BUSINESS IS TRADING OF FERROUS & NON FERROUS METAL. ON EXAMINATION OF BOOKS OF ACCOUNTS I.E. CASH BOOK, IT IS NOTICED THAT DURING THE YEAR THE ASSESSEE HAS PURCHASED BRASS SCRAP FRO M HAWKERS-FERIAS ON URD BASIS BY MAKING CASH PAYMENT BELOW RS.20,000. THIS ISSUE WAS BROUGHT TO THE NOTICE OF ASSESSEE AND WAS REQUESTED TO FURNISH THE COPIES OF SUCH PURCHASE BILLS ISSUED BY SELLERS/HAWKERS. HOW EVER INSTEAD OF FURNISHING THE COPIES OF BILLS ISSUED BY THE SELLERS PRODUCED THE SELF GENERATED CASH MEMOS PREPARED BY THE ASSESSEE. ASSESSEE HAS FURNI SHED COPY OF PURCHASE REGISTER FOR URD PURCHASE, SHOWING THE QUA NTITY AND RATE OF PURCHASE GOODS. HOWEVER THE ASSESSEE HAS NOT PRODU CED ANY PROOF OF RD PURCHASE. 4. ON VERIFICATION OF THE TRADING A/C FOR THE YEAR ENDED ON 31-3-08 FILED ALONG WITH THE RETURN OF INCOME BY THE ASSESSEE FOR JAMNAGAR DIVISION, IT IS NOTICED THAT THE ASSESSEE HAS SHOWN GP AMOUNTING TO RS.9,88,823/- ON SALES OF RS.8,09,32,861/- DISCLOSING GP OF 1.22% ON LY. ON THE IDENTICAL FACTS, THE ASSESSMENT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007- 08 AND IN THE CASE OF RAKESH S CHAPPARWAL (HUF), SO N OF THE ASSESSEE (PAN AACHC0222N)THE ASSESSMENT YEAR 2006-07 AND 2 007-08 WERE FINALIZED MAKING ADDITION FOR LOW GP. THE ISSUE IS NOW SETTLED AFTER ORDER OF THE HONBLE ITAT WHERE IT HAS BEEN HELD THAT THE GP RATION FOR JAMNAGAR UNIT INVOLVING PURCHASES FROM UNREGISTERED DEALERS SHALL BE 1.25% OF THE TURNOVER. CONSIDERING THE SAME OF FACTS AND EXISTEN CE OF SIMILAR CIRCUMSTANCES, THE GP OF THE JAMNAGAR UNIT IS HEREB Y DETERMINED @ 1.25% OF THE TURNOVER. THE ASSESSEE HAS DISCLOSED GP @ 1. 22% OF THE TURNOVER, TE DIFFERENCE BEING 0.03% OF THE TURNOVER IS WORKED OU T AT RS.23,000/-. ACCORDINGLY, AN ADDITION OF RS.23,000/- IS ADDED ON ACCOUNT OF LOW GP. 6. ON APPEAL, THE LD. CIT(A) HAS DELETED THE IMPUGN ED ADDITION WITH THE FOLLOWING OBSERVATIONS:- 5. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIO N OF THE APPELLANT AND THE FACTS MENTIONED IN THE ASSESSMENT ORDER. IT IS FOUND THAT TURNOVER OF THE APPELLANT IS RS.8.03 CRORES AND THE GP OF 1.22% HAS BEEN DECLARED. THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNTS U/S.145 BY POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS. THE AO H AS ALSO NOT COMPARATIVELY DISCUSSED THE GP DECLARED BY THE APPE LLANT IN THE EARLIER 3 ITA 374/RJT/2011 YEARS, BUT HAS COMPARED THE GP WITH RAKESH CHHAPARW AL, WHOSE TURNOVER IS ALSO NOT VERY MUCH HIGH. THEREFORE, SINCE THE BOOK S OF ACCOUNTS OF THE APPELLANT ARE AUDITED U/S.44AB AND QUANTITATIVE DET AILS ARE ALSO MAINTAINED, NO ADDITION CAN BE MADE WITHOUT REJECTING THE BOOKS OF ACCOUNTS. THEREFORE, THE ARBITRARY ADDITION OF RS.23,000 MADE BY THE ASS ESSING OFFICER IS HEREBY ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS AL LOWED. 7. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE FINDINGS RECORDED IN THE ASSESSMENT ORDER AND SUBMI TTED THAT THE PURCHASES MADE BY THE ASSESSEE WERE COMPLETELY UNVERIFIABLE FOR TH E REASONS GIVEN IN THE ASSESSMENT ORDER AND THEREFORE THE LD. CIT(A) WAS N OT JUSTIFIED IN HOLDING THAT THERE WAS NO DEFECTS IN THE BOOKS OF ACCOUNT WARRANTING T HEIR REJECTION BY THE AO. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS FO LLOWED THE ORDER OF THIS TRIBUNAL ON IDENTICAL SET OF FACTS IN WHICH APPLICATION OF G ROSS PROFIT RATE OF 1.22% WAS UPHELD. ACCORDING TO HIM, THE LD. CIT(A) HAS COMPLE TELY IGNORED THE AFORESAID ASPECT OF THE MATTER HIGHLIGHTED IN THE ASSESSMENT ORDER WHILE DELETING THE IMPUGNED ADDITION. 8. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FINDINGS RECORD ED BY THE AO IN PARA-3 AND 4 OF THE ASSESSMENT ORDER HAVE BEEN COMPLETELY IGNORED B Y THE CIT(A) WHILE DELETING THE IMPUGNED ADDITION. IN THIS VIEW OF THE MATTER, THE ORDER OF THE C.I.T.(A) IN THIS BEHALF IS SET ASIDE AND THE MATTER IS RESTORED TO H IS FILE FOR DECIDING THE MATTER AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO B OTH THE PARTIES. GROUND NO.1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 TAKEN BY THE DEPARTMENT READS AS UND ER:- 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.1,92,536/- MADE BY THE AO ON ACCOUNT OF DISALLOW ANCE OF INTEREST EXPENSES TREATING THE SAME AS NON BUSINESS EXPENDIT URE. 10. THE ASSESSING OFFICER HAS DEALT WITH THE ISSUE IN PARA 6-10 OF THE ASSESSMENT ORDER WHICH READS AS UNDER:- 6. ON GOING THROUGH, THE BALANCE SHEET IT IS NOTIC ED THAT THE ASSESSEE HAS GIVEN AN INTEREST FREE LOAN OF RS.13,00,000/- T O HER DAUGHTER-IN-LAW SMT. MAMATABEN CHHAPARWAL. PERUSAL OF P & L A/C. SHOWS THAT THE ASSESSEE PAID INTEREST OF RS.5,37,479/- IN ADDITION TO INTER EST OF RS.2,81,462/- ON ACCOUNT OF LATER PAYMENT OF SALES TAX. HENCE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY INTEREST WAS NOT CHARGED ON THE L OAN GIVEN OR TO EXPLAIN BUSINESS EXPEDIENCY IN GIVING SUCH LOAN. THE ASSES SEE VIDE HER REPLIED DATED 23/12/2010, IT WAS STATED THAT SHE HAD CREDIT BALANCE IN CAPITAL ACCOUNT 4 ITA 374/RJT/2011 AND ALSO THERE WAS NO DIRECT NEXUS IN THE LOAN GIVE N. HENCE, NO INTEREST WAS CHARGED. 7. THE SUBMISSION IS CONSIDERED BUT THE SAME IS NOT FOUND TO THE ACCEPTABLE. FIRST IT IS CLEAR THAT THERE WAS NO BU SINESS EXPEDIENCY IN GIVING INTEREST FREE LOAN OF RS.13,00,000/- TO HER DAUGHTE R-IN-LAW. THE NEXT ISSUE REGARDING CLAIM OF UTILIZATION OF CAPITAL IN GIVING INTEREST FEE LOAN IS FACTUALLY INCORRECT. PERUSAL OF THE BALANCE SHEET FOR THE IM MEDIATE PRECEDING YEAR SHOWS THAT IN ADDITION TO CLOSING BALANCE OF THE CA PITAL OF RS.19,71,954/-, THERE WERE IN BEARING UNSECURED LOANS OF RS.16,47,5 15/-. THIS FUND DEPLOYMENT SHOWS THAT NOT ONLY THE ENTIRE CAPITAL B UT THE ADDITIONAL CREDIT HAVING INTEREST COST WAS FULLY DEPLOYED IN THE BUSI NESS AND SHE HAD NO ANY INTEREST FREE FUND IN POSSESSION AT THE BEGINNING O F THE YEAR. DURING THE YEAR UNDER CONSIDERATION ALSO, BEFORE GIVING THE LOANS T O HER DAUGHTER-IN-LAW SHE WITHDRAWN MAJORITY PART OF HER CAPITAL, LEAVING A M EAGER BALANCE OF RS.1,11,878/- IN THE CAPITAL ACCOUNT. IT IS THEREF ORE CLEAR THAT THE CLAIM REGARDING AVAILABILITY OF CAPITAL THE INTEREST FREE FUND IS FACTUALLY INCORRECT. 8. THE ASSESSEE HAD MADE PAYMENT OF INTEREST FOR TH E FULL YEAR ON THE OPENING BALANCES OF UNSECURED LOANS IN ADDITION TO INTEREST BEARING UNSECURED FUNDS TAKEN DURING THE YEAR. IN CASE THE V WOULD HAVE REPAID THE INTEREST BEARING FUND INSTEAD OF GIVING INTEREST FR EE LOANS TO HER DAUGHTER-IN- LAW WITHOUT ANY BUSINESS EXPEDIENCY, THE PROFIT OF THE BUSINESS WOULD HAVE BEEN MORE THAN THE SAME SHOWN. 9. MOREOVER, THE CAPITAL ACCOUNT OF THE ASSESSEE SH OWS THAT SHE MADE SUBSTANTIAL WITHDRAWALS DURING THE YEAR UNDER CONSI DERATION. AS DISCUSSED ABOVE, THE ASSESSEE IS PAYING INTEREST ON UNSECURED LOANS HAVING OPENING BALANCE, LATE PAYMENT OF SALES TAX AS WELL AS THE L OANS TAKEN DURING THE YEAR UNDER CONSIDERATION. THIS SHOWS THAT THE ASSE SSEE IS PAYING HEAVY INTEREST ON THE FUNDS TAKEN WHERE AS THE SAME WAS U SED IN GIVING INTEREST FEE LOAN TO RELATIVES AND MAKING HEAVY WITHDRAWALS FOR NO ANY BUSINESS PURPOSE. SUCH KIND OF UTILIZATION OF INTEREST BEARING FUNDS IS NOTHING BUT EXPLOITATION OF THE BUSINESS FOR THE PERSONAL PURPOSE. AS DISCUSSED ABOVE, IF THE ASSESSEE HAD CONSUMED THE INTEREST BEARING FUNDS FOR THE PUR POSE OF BUSINESS ONLY AND REPAID THE INTEREST BEARING LOANS THE COST OF I NTEREST WOULD HAVE SUBSTANTIALLY REDUCED AND INCREASED THE PROFIT OF T HE BUSINESS. 10. AS PER THE PROVISIONS OF SEC.36 OF THE ACT, DED UCTION FOR PAYMENT OF INTEREST IS ALLOWABLE ONLY IF THE SAME IS PAID FOR THE PURPOSE OF BUSINESS. KEEPING IN VIEW THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, THE PAYMENT OF INTEREST CORRESPONDIN G TO THE INTEREST FREE LOAN GIVEN IS NOT AN ALLOWABLE DEDUCTION. BESIDES, U/S.3 7 OF THE ACT ALSO, IF ANY EXPENDITURE IS NOT MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE 5 ITA 374/RJT/2011 BUSINESS, SUCH EXPENDITURE IS NOT ALLOWABLE OUT OF THE PROFIT OF HE BUSINESS. SUCH CORRESPONDING INTEREST IS WORKED OUT AT RS.34, 639/- FOR LOAN GIVEN TO HER DAUGHTER-IN-LAW AND RS.1,57,897/- TOWARDS FUND UTILIZED FORMAKING WITHDRAWALS. HENCE, TOTAL AMOUNT F RS.1,92,536/- ( 34,639 + 1,57,897) IS DISALLOWED OUT OF CLAIM FOR INTEREST EXPENSES. THE PENALTY PROCEEDINGS U/S.271(1) ARE INITIATED FOR THE SAME FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME. 11. ON APPEAL, THE LD. CIT(A) HAS RESTRICTED THE DI SALLOWANCE OF RS.34,639/- WITH THE FOLLOWING OBSERVATIONS:- 10. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON OF THE APPELLANT AND THE FACTS MENTIONED IN THE ASSESSMENT ORDER. IT HAS BEEN FOUND FROM THE CAPITAL ACCOUNT OF THE APPELLANT THAT SHE WAS HAVIN G OPENING BALANCE IN PERSONAL SETS OF BOOKS OF ACCOUNT OF RS.25,73,913 A ND ALSO THE CLOSING CAPITAL OF HER BALANCE-SHEET OF RS.20,16,350. THER E ARE ALSO UNSECURED LOANS OF RS.11,68,009. THESE FACTS SHOW THAT SHE W AS HAVING ENOUGH INTEREST FREE FUNDS AND THEREFORE, THE ADDITION OF RS.1,57,897 TOWARDS UNUTILIZED FUNDS WITHDRAWN IS UNCALLED FOR. THE AO HAS FAILED TO UNDERSTAND THAT THE TRANSACTION IN SHREEJI SALES CORPORATION A RE OUT OF THE PERSONAL SETS OF BOOKS OF ACCOUNT, WHICH ARE MAINTAINED SEPARATEL Y. AS FAR AS THE LOAN OF RS.13 LAKHS IS CONCERNED, IT IS FOUND THAT SAME WAS GIVEN ON 06/12/07 AND FURTHER ON VARIOUS DATES AND TOTAL INTEREST WORKS O UT TO RS.34,590. HERE IT IS FOUND THAT APPELLANT IS PAYING INTEREST ON UNSECURE D LOANS AND THEREFORE, THE AO TO THAT EXTENT IS CORRECT IN DISALLOWING INTERES T OF RS.34,590 OUT OF RS.5,37,479 DEBITED IN P&L ACCOUNT. TO THE EXTENT OF RS.34,639 THE ADDITION IS CONFIRMED AND REST OF ADDITION OF RS.1,57,897 (1 ,92,536 34,639) IS HEREBY ORDERED TO BE DELETED. THIS GROUND OF APPEA L IS PARTLY ALLOWED. 12. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FINDINGS RECORD ED BY THE ASSESSING OFFICER THAT A SUM OF RS.13,00,000/- WAS GIVEN AS INTEREST-FREE FU NDS BY THE ASSESSEE TO HER DAUGHTER-IN-LAW IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS PAID INTEREST OF RS.5,37,479/- ON INTEREST-BEARING ADVAN CES TAKEN BY HER IN ADDITION TO INTEREST OF RS.2,81,462/- ON ACCOUNT OF DELAYED PAY MENT OF SALES TAX. IF THE ASSESSEE HAD NOT GIVEN INTEREST FREE ADVANCE OF RS. 13,00,000/- TO HER DAUGHTER-IN- LAW, THE SAID SUM WOULD HAVE BEEN AVAILABLE WITH TH E ASSESSEE AND, IN THAT CASE, THE SAME COULD HAVE BEEN UTILIZED FOR THE PURPOSE O F THE BUSINESS AND THEREBY OBVIATING THE INTEREST LIABILITY. THE ASSESSING OFF ICER HAS REFERRED TO THE JUDGMENT IN S.A. BUILDERS 288 ITR 1 (SC) FOR COMING TO THE CONC LUSION THAT INTEREST-FREE FUNDS WERE NOT GIVEN BY THE ASSESSEE TO HER DAUGHTER-IN-L AW OUT OF BUSINESS EXPEDIENCY AND THEREFORE PROPORTIONATE AMOUNT OF INTEREST WAS TO BE DISALLOWED. 6 ITA 374/RJT/2011 13. IN S.A. BUILDERS V. CIT, 288 ITR 1 (SC), IT HAS BEEN HELD THAT WHAT IS RELEVANT FOR DISALLOWING INTEREST IS WHETHER THE INTEREST-FR EE ADVANCE WAS GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. IF THE AMOUNT WAS NOT ADV ANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY THEN INTEREST ATTRIBUTABLE TO SUCH ADVANCES WOULD HAVE TO BE PROPORTIONATELY DISALLOWED. THERE IS NO FINDING OF THE CIT(A) AS TO WHETHER INTEREST-FREE FUNDS WERE PROVIDED BY THE ASSESSEE T O HER DAUGHTER-IN-LAW OUT OF COMMERCIAL EXPEDIENCY. 14. IN CIT V. ABHISHEK INDUSTRIES LTD., 286 ITR 1 ( P & H), THE HONBLE HIGH COURT, AFTER REFERRING TO SEVERAL JUDGMENTS, HAS HELD AS U NDER:- . . . . . . . . . . . . . . WE DO NOT SUBSCRIBE TO THE OBSERVATION IN THE JUDGMENTS TO THE EFFECT THAT IF THE AMOUNT IS ADVANCED FROM A MI XED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS, ETC., THE SAME WOULD NOT BE TERMED AS DIVERSION OF BORROWED CAPITAL OR THAT THE REVENUE H AD NOT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS ADVANCED TO THE SISTER CONCERNS WITH THE BORROWED FUNDS. ONCE IT IS BORNE OUT FROM THE RECO RD THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TA X IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED T O SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT AN Y BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WI THOUT CARRYING ANY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(II I) OF THE ACT. SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD F OR THE PURPOSE OF BUSINESS BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DER IVING ANY BENEFIT OUT OF IT. ACCORDINGLY, THE ASSESSEE WILL NOT BE ENTITLED TO C LAIM DEDUCTION OF THE INTEREST ON THE BORROWINGS TO THE EXTENT THOSE ARE DIVERTED TO SISTER CONCERNS OR OTHER PERSONS WITHOUT INTEREST. 15. IT IS APPARENT FROM THE APPELLATE ORDER THAT TH E LD. CIT(A) HAS REDUCED THE IMPUGNED DISALLOWANCE WITHOUT EXAMINING THE RELEVAN T ASPECTS OF THE CASE. IN THIS VIEW OF THE MATTER, HIS ORDER IN BEHALF IS SET ASID E AND THE MATTER IS RESTORED TO HIS FILE FOR A FRESH DECISION IN CONFORMITY WITH LAW AF TER GIVING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. 16. GROUNDS NO.3 AND 4 TAKEN BY THE DEPARTMENT ARE INTER-LINKED AND READ AS UNDER:- 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.3040000/- MADE BY THE AO U/S.68 OF THE ACT ON A CCOUNT UNEXPLAINED CASH CREDITS AND UNEXPLAINED CAPITAL INTRODUCTION. 4. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS.145860/- MADE BY THE AO ON ACCOUNT INTEREST ON U NEXPLAINED CASH CREDITS. 7 ITA 374/RJT/2011 17. THE FACTUAL BACKGROUND OF THE ISSUE UNDER APPEA L IS GIVEN IN PARA 11-13 OF THE ASSESSMENT ORDER, WHICH READS AS UNDER:- 11. PERUSAL OF THE CAPITAL ACCOUNT AND BALANCE SHE ET SHOWS INTRODUCTION OF NEW CAPITAL OF RS.90,000/-, AND RECEIPT OF UNSEC URED LOANS AS UNDER:- PARTICULAR PRINCIPAL INTEREST TOTAL NEW CAPITAL RS. 90,000/- UNSECURED LOANS VIJAYABEN K. PATEL RS. 3,00,000/- RS. 8,816/- RS. 3,08,816/- KESHAV M.GARASANDIA RS. 6,00,000/- RS. 21 ,304/- RS. 6,21,304/- PATEL BRASS PARTS RS.20,50,000/- RS.1,15 ,680/- RS. 21,65,680/- INDUS TOTAL RS.31,85,800/- THE ASSESSEE WAS ASKED TO EXPLAIN THE GENUINENESS OF THE CASH CREDITS AND EXPLAIN THE SOURCE OF INTRODUCTION OF N EW CAPITAL. BUT FOR THE REASONS BEST KNOWN TO THE ASSESSEE, HE HAS NOT GIVEN ANY INFORMATION IN RESPECT OF THE SOURCE AND GENUINENESS OF THE CASH C REDITS AND IDENTITY, CREDITWORTHINESS OF SO CALLED CREDITORS. 12. AS DISCUSSED ABOVE, THE ASSESSEE WAS ASKED TO E XPLAIN THE IDENTITY, CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS O F THE RESPECTIVE TRANSACTIONS OF SUCH CASH CREDITS AND INTRODUCTION OF NEW CAPITAL. HOWEVER THE ASSESSEE HAS MERE SUBMITTED COPY OF LEDGE ACCOU NT. THE ASSESSEE HAS NOT PROVIDED SINGLE IOTA TO PROVE THE SOURCES AND G ENUINENESS OF THE ABOVE MENTIONED CASH CREDITS AND ADDITION IN CAPITAL AND IDENTITY & CREDITWORTHINESS OF THE ABOVE SO CALLED CREDITORS. EVEN IT WAS CLEA RLY MENTIONED IN THE SHOW CAUSE NOTICE THAT IN ABSENCE OF SUCH VITAL INFORMAT ION, THE CASH CREDITS AND NEW CAPITAL INTRODUCTION SHOWN IN THE BOOKS OF ACCO UNTS OF THE ASSESSEE WOULD BE CONSIDERED AS UNEXPLAINED CASH CREDIT AND WOULD BE RESULTED IN ADDITION U/S. 68 OF THE ACT TO HIS TOTAL INCOME. H OWEVER THE ASSESSEE HAS NOT PROVIDED ANY COGENT EVIDENCE TO EXPLAIN THE CASH CR EDITS TOTALING TO RS.30,40,000/- (RS.29,50,000+90,000) SHOWN IN THE B OOKS OF ACCOUNT. 13 THE PRIMARY ONUS IS ALWAYS LIES ON THE ASSESSEE TO PROVE IDENTITY, CREDITWORTHINESS OF THE CREDITORS AND THE GENUINENE SS OF TRANSACTIONS OF THE CASH CREDIT S SHOWN IN HIS BOOKS OF ACCOUNTS AND NE W CAPITAL INTRODUCED IN CAPITAL ACCOUNT. AS DISCUSSED ABOVE THE ASSESSEE CO ULD NOT DISCHARGE THE PRIMARY ONUS LIES ON HER BY WAY OF PRODUCING THE CO GENT EVIDENCES. THUS THE ASSESSEE HAS NOT DISCHARGED THE PRIMARY BURDEN TO PROVE THE GENUINENESS OF THE FRESH CAPITAL, WHICH ARE CREDITE D IN HIS BOOKS OF ACCOUNTS. HENCE THE ASSESSEE FAILED IN EXPLAINING THE TOTAL C ASH CREDITS BEING UNEXPLAINED CREDITS OF RS.29,50,000/- AND NEW CAPIT AL INTRODUCED OF RS.90,000/- IN HER BOOKS OF ACCOUNTS AND THEREFORE AN ADDITION OF 8 ITA 374/RJT/2011 RS.30,40,000/- IS MADE ON ACCOUNT OF UNEXPLAINED CA SH CREDITS AS PER THE PROVISIONS OF SECTION 68 OF THE ACT. 18. ACCORDING TO THE AO, THE ASSESSEE HAS FAILED TO SATISFACTORILY EXPLAIN THE NATURE AND SOURCE OF IMPUGNED CASH CREDITS. RELYIN G UPON THE JUDGMENTS REFERRED TO IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER H AS TREATED THE IMPUGNED CASH CREDITS AS UNEXPLAINED AND CONSEQUENTLY TAXED THE S AME. HE HAS ALSO DISALLOWED INTEREST AMOUNTING TO RS.1,45,860/- ON THE AFORESAI D CASH CREDITS. 19. ON APPEAL, THE LD. CIT(A) HAS DELETED THE IMPUG NED CASH CREDITS AND INTEREST THEREON WITH THE FOLLOWING OBSERVATIONS:- 14. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON OF THE APPELLANT AND THE FACTS DISCUSSED IN THE ASSESSMENT ORDER. IT IS FOUND THAT THE SOURCE OF ADDITION OF NEW CAPITAL OF RS.90,000 IS FROM THE PE RSONAL ACCOUNT OF THE APPELLANT, WHEREIN ENOUGH CAPITAL IS AVAILABLE AND ALL TRANSACTIONS IN CASH ARE REFLECTED IN THE RESPECTIVE BOOKS OF ACCOUNTS. ACC ORDINGLY THE ABOVE ADDITION IS FOUND DEVOID OF MERIT AND THE SAME IS ORDERED TO BE DELETED. 15. REGARDING THREE CASH CREDITS IT IS EXPLAINED BY THE AR OF THE APPELLANT THAT CONFIRMATIONS OF THESE CREDITORS WERE FILED AN D ALL THE CREDITORS ARE ASSESSED TO TAX AND AMOUNT HAS BEEN RECEIVED BY CHE QUE AND SAME IS REFLECTED IN BANK STATEMENT. I HAVE ALSO FOUND THA T THE ABOVE SUBMISSION OF THE AR OF THE APPELLANT IS CORRECT. THE CONFIRMATI ONS OF THE PARTIES SHOW THAT THEY ARE ASSESSED TO TAX AND INTEREST HAS BEEN ALSO DULY PAID TO THEM. THE TRANSACTIONS HAVE ALSO BEEN DONE THROUGH NAWANAGAR CO-PP. BANK LTD. WHEREIN IN THE ACCOUNT NO.3581 OF SHREEJI SALES COR PORATION THE CREDIT FOR THE ABOVE DEPOSITS IS REFLECTED. IN VIEW OF THE ABOVE FACTS, IT IS HELD THAT THE APPELLANT IS SUCCESSFUL IN PROVING THE THREE INGRED IENTS REQUIRED U/S.68 OF THE ACT, I.E. IDENTITY, CREDIT WORTHINESS AND GENUINENE SS OF THE TRANSACTION. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE ADDIT ION MADE U/S.68 OF RS.29,50,000/- IS HEREBY ORDERED TO BE DELETED. THE GROUND OF APPEAL IS ALLOWED. 16. IN NEXT GROUND THE APPELLANT HAS CHALLENGED DIS ALLOWANCE OF INTEREST PAID TO THESE THREE CREDITORS. IT IS NOTICED THAT THE AO HAS DISCUSSED THIS ISSUE ON PAGE 6 IN PARA16 OF THE ASSESSMENT ORDER, WHEREIN INTEREST OF RS.1,45,860 CLAIMED ON ACCOUNT OF THESE CASH CREDIT S, WHICH HAS BEEN HELD AS EXPLAINED WAS ALSO DISALLOWED. 17. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT AND THE FACTS DISCUSSED IN THE ASSESSMENT ORDER. A S DISCUSSED IN PRECEDING PARA (PARA NO.15) THE ADDITION MADE U/S.68 ON ACCOU NT OF UNEXPLAINED CASH CREDITS STANDS DELETED AND HAS BEEN HELD AS GENUINE , AS A NATURAL COROLLARY 9 ITA 374/RJT/2011 INTEREST IS ALSO HELD ALLOWABLE TO THESE THREE CASH CREDITS AND THEREFORE, ADDITION OF RS.1,45,860 MADE BY THE AO IS HEREBY OR DERED TO BE DELETED. THIS GROUND IS ALSO ALLOWED. 20. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPR ESENTATIVE RELIED UPON THE FINDINGS RECORDED BY THE ASSESSING OFFICER IN HIS A SSESSMENT ORDER. 21. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE AND ALSO CONSIDERED THE MATERIALS AVAILABLE ON RECORD. THE CASE OF THE AO I S THAT NO EVIDENCE WAS FILED BEFORE HIM TO ESTABLISH SATISFACTORILY THE NATURE A ND SOURCE OF THE IMPUGNED CASH CREDITS EXCEPT THE COPY OF LEDGER ACCOUNT OF THE CR EDITORS. THE CIT(A), ON THE OTHER HAND, HAS HELD THAT CONFIRMATIONS OF THESE CREDITOR S WERE FILED AND THAT THE CREDITORS WERE ASSESSED TO TAX. ACCORDING TO HIM, THE AMOUNTS WERE RECEIVED BY CHEQUE. THERE IS WIDE GAP BETWEEN THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER AND BY THE CIT(A) IN HIS APPELLATE ORDER IN T HIS BEHALF. THE AO IS QUITE CATEGORICAL IN HIS OBSERVATION THAT THE ASSESSEE H AS NOT GIVEN ANY INFORMATION IN RESPECT OF THE SOURCE AND GENUINENESS OF THE CASH C REDITS AND IDENTITY, CREDITWORTHINESS OF SO-CALLED CREDITORS. THERE IS NOTHING TO SUGGEST THAT COPIES OF BANK ACCOUNTS OF CASH CREDITORS WERE FILED BEFORE T HE AO OR THEY WERE SCRUTINIZED EITHER BY THE AO OR BY THE CIT(A) TO FIND OUT AS TO WHETHER MATCHING AMOUNTS WERE DEPOSITED IN CASH IN THE BANK ACCOUNT OF CREDITORS IMMEDIATELY BEFORE THE CHEQUES WERE ISSUED BY THEM. ALL THESE FACTS NEED CLOSE SC RUTINY. IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE CIT(A) IN THIS BEHALF IS VA CATED AND THE MATTER IS RESTORED TO HIS FILE FOR A FRESH DECISION IN CONFORMITY WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. GROUND S NO.3 AND 4 TAKEN BY THE DEPARTMENT ARE TREATED AS ALLOWED FOR THE STATISTIC AL PURPOSES 22. IN VIEW OF THE FOREGOING, APPEAL FILED BY THE D EPARTMENT IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ) + 22-05-2012 - ) THIS ORDER PRONOUNCED IN OPEN COURT ON 22-05-2012 SD/- SD/- ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER +/ DATE -05-2012. /RAJKOT 10 ITA 374/RJT/2011 ) )) ) 01 01 01 01 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. 5 / APPELLANT-. THE INCOME-TAX OFFICER, WD.-3(2), JA MNAGAR. 2. 075 / RESPONDENT-SMT.SHANTABEN SHANKARLAL CHHAPARWAL, JAMNAGAR. 3. : / CONCERNED CIT, JAMNAGAR. 4. :- / CIT (A), JAMNAGAR. 5. 1 0, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR/ , / ITAT, RAJKOT