AJMER SINGH, HOSHIARPUR V. ITO, HOSHIARPUR

ITA 4/ASR/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2476 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-04-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 01-01-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAVINDER PAL SINGH
• Keywords: Unexplained cash credit; Gift; Principle of natural justice; Set aside
• Section: 131; 68; 263; 143(3); 205; 250; 264; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. UDAYAN DASGUPTA, JUDICIAL MEMBER I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 Ajmer Singh Prop. M/s Nirvana Resort And SPA, VPO Jaijon, Hoshiarpur. [PAN:-CKQPS9501J] (Appellant) Vs. ITO, Ward-1, Hoshiarpur.Punjab 146001 (Respondent) Appellant by Sh.Ashray Sarna, CA Respondent by Sh. Davinder Pal Singh, Sr. DR Date of Hearing 15.04.2024 Date of Pronouncement 09.05.2024 ORDER Per: Udayan Dasgupta, JM: This appeal is preferred against the order of the CIT (A)/ NFAC, dated 22/12/2023, passed u/s 250, of the Income Tax Act 1961, for the Assessment Year 2017-18, which in turn has arisen out of the assessment order of the AO assessment unit, passed u/s 143(3) rws 263 read with section 144B of the Act 61. 2. The assessee has taken the following grounds: - I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 2 “1. That the order passed by the Hon’ble CIT(A) dated 22.12.2023 is against the law and facts of the case. 2, That having regard to the facts anti circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of ld. AO in framing the impugned assessment order us 143(3) r.w.s. 263 read with section 144B of the income tax Act and without complying with the mandatory conditions u/s 143/ 144/263/151 as envisaged under the Income Tax Act. 1961 and merely on the basis of incorrect facts. 3. I hat having regard to the facts and circumstances of the case. Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.51,01,811 u/s 68 of the Act on account of addition in capital account treated as unexplained credit, without considering the facts of the case and without observing the principles of natural justice. 4. That the appellant craves the leave to add. modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds arc without prejudice to each other.” 3. The facts are that the appellant is an individual engaged in proprietorship business under trade name of “Nirvana Resort and Spa” Hoshiarpur, Punjab. The assessment u/s 143(3) of the Act 61, was completed on 17/12/2019, by accepting the returned income (returned Loss in this case) of Rs. 33,44,798/- without any variation. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 3 1) Thereafter, the PCIT assumed jurisdiction u/s 263 of the Act 61, and passed order dated 17/12/2019, setting aside the assessment, back to the AO, with direction to verify the fresh introduction of capital in business made by the assessee during year, amounting to Rs. 1,12,40,519/- (credited in capital account) . 2) As per the assessee, the source of capital introduction was from three sources: (a) withdrawal from savings bank account Rs. 49,16,350/- (b) agricultural income Rs. 12,22,359/- and (c) un secured loan amounting to Rs. 51,01,810/-, from a NRI friend of Indian Origin (holding Canadian Passport), Mr. Sailesh Joitabhai Patel, PP No: HM055198 (Canadian). 3) In course of proceedings u/s 143(3) / 263 of the Act 61, the assessee satisfactorily explained the amount of Rs.49,16,350 /- from bank withdrawals and the agricultural income of Rs.12,22,359/-, to the satisfaction of the AO, but regarding the friendly loan of Rs. 51,01,810/- from Mr. Patel, the identity, genuiness and creditworthiness of the lender, remained unproved, and the order u/s 143 / 263, dated 20/03/2023 was passed making an addition of Rs.51,01,811/-, u/s 68 of the Act 61, on account of cash credit, to be taxed at rates prescribed u/s 115BBE of the Act 61. As seen from the observation of the AO ( in para 3.4 of the I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 4 assessment order dated 20/03/2023 ) the assessee disclosed the name and address of the lender , 2224953 Ontario inc of 3117 saddleworth Crescent, oakville, ON L6M0A8, Canada, email id [e-mail], but failed to furnish any supporting documentary evidences , details of lender, nature of loan, term of loan, any supporting loan agreement, to the satisfaction of the AO.in course of proceedings before him. 4. The matter was carried in first appeal before the CIT (A) NFAC, and the first appellate authority, vide order u/s 250 dated 22/12/2023, confirmed the addition of Rs.51,01,810/-. However, from the discussion in CIT (A) order dated 22/12/2023, it is seen page 4, para- 6, of order), that the assessee has furnished the following documents in course of appellate proceedings before CIT (A): i) Wire payment instructions from TD canada Trust (1,00,080 CAD) ii) Bank Account of the assessee (appellant) HDFC bank, iii ) Passport copy xerox of the lender Mr. Shailesh Patel. 5. The CIT (A) has observed, that in spite of request the assessee was not able to furnish the complete bank account of the loan creditor, tax return copies of the creditor, details of interest payable, and he further observed that the assessee filed a snap shot of a particular bank account, claiming it to be that of the loan creditor, in which the amount transferred to the assessee is recorded on 11 th January, 2017 I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 5 (debit entry 1,00,080 CAD) and just six days before on 5 th . January, 2017, two credit entries are noted for CAD 1,50,000 and CAD 1,00,000. Except these three transaction, no other financial transaction is visible from the snap shot of the bank account submitted, and according to the CIT(A) the genuineness of the transaction and creditworthiness of the loan lender has not been proved by the assessee. Hence the addition u/s 68 was sustained. 6. In this instant appeal, before the Tribunal, it is the unsecured loan amount of Rs. 51,01,810/- which is the subject matter of dispute. In course of this appellate proceedings, the appellant has filed a short paper book containing the following: (i) Name and address of the Loan Lender with email id :Mr. Shailesh Patel, 2224953 Ontario inc of 3117 saddleworth Crescent, oakville, ON L6M0A8, Canada, email id [e-mail], (ii) The snap shot of the loan lenders bank account , without the name of the account holder , account number , or address , on the bank account statement, or any kind of bank id code , (iii) Wire payment instructions of Canada Trust, (Toronto Domination Bank) with wire payment id 170111B7168700, Financial transaction id : 718770 , dated Wednesday , the 11 th January, 2017 , sending customer being 2224953 Ontario inc , Oakville City, Canada , and receiving customer being I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 6 NIRVANA RESORTS and SPA , Hoshiarpur, Jaijon State, India , including the customer code number . The settlement banker in this case was Punjab National Bank, Hoshiarpur, Punjab. (iv) The debit Memo value was 100,080 CAD converted to INR 51,02,040/- (v) HDFC bank certificate (Xerox) A/c No: 14351000027958, issued on request to the assessee Mr. Ajmer Singh, which certifies that a total amount of 16,000 CAD ( on three occassions ) has been transferred to one Nita Patel , (vi) Nita Patel is stated to be the wife of the loan lender Mr. Sailesh Patel, and as ID a Canadian driving license, photo copy, is enclosed. (vii) It is further submitted in writing by the A/R of the appellant, that the following amount has been repaid to the wife of the loan lender Nita Patel, being part repayment of the loan amount (till date): 4 th February, 2020 Rs. 2,17,200/- (4000 CAD), 15 th December, 2020 Rs.4,69,680 /- (8000 CAD), 13 th October, 2022 Rs. 2,43,800/- (4000 CAD) (viii) HDFC Bank Statement (photo copy) of the appellant Mr Ajmer Singh, which reflects the part loan repayment in three instalments to the wife of the lender, on the respective dates specified in above paragraph. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 7 7. The argument of the Ld. AR , is that, on the facts of the case and on the basis of documentary evidence submitted , the appellant has already discharged his onus cast upon him by proving the identity of the lender ,by way of passport , has proved the movement of funds relating to the transaction , by way of documents to establish the fact that funds has actually moved through wire system , from Canada to the appellant bank account in India and subsequently a part amount has also been repaid through bank channel to the wife of the lender , and the remaining amount of Rs.41,71,131/- ( Rs. 51,01,811/- minus Rs.9,30,680/-) is still outstanding with the appellant, and has not been repaid till date of hearing of this appeal. 8. According to him, since the identity of the lender is established by the passport ( NRI of Indian Origin ) now a Canadian passport holder, and the movement of funds are established to have taken place from a bank account in Canada ( through wire transfer ) to the bank account of the assessee in India , the credit worthiness of the foreign lender is not required to be proved , because the income of the Canadian Citizen cannot be brought to tax in India, and the lender is under no obligation to file his tax returns in India . He further argues that the assessee is not required to prove the source of source because the amendment in section 68 of the Act 61, is with effect from 1 st April 2023 and the amendment is I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 8 an illustration of application of “Mischief Rule” in interpretation of statues. In support of his contention, the Ld A/R relies upon the following judgments for support: (a) ITO vs Balwan Singh ITA No: 2869/ Delhi 2019 dated 07/08/2023, (b) Gaurav Triyugi Singh vs ITO 423 ITR 531 (Bombay), (c) Nemi Chand Kothari vs CIT 264 ITR 254 (Guwahati) As such he prays that the addition of Rs. 51,01,811/- made by the AO and sustained by the CIT(A) , u/s 68 of the Act 61, may please be deleted. 9. Argument of the Ld. DR: On the other hand, the Ld. DR, argued, that even if the identity of the lender is accepted on the basis of the passport copy filed and the proof of wire transfer of funds from Canada to the assessee bank account in Punjab, India is authenticated by the bank statements, the question of creditworthiness of the lender still remains in doubt. The full bank account statement of the loan creditor with full name , account number and bank id is not available, and the regular tax returns of the lender in his respective country of residence has not been filed to prove the credit worthiness of the lender , more so , when the Ld. CIT ( A ) has made a keen observation in his appeal order, that funds has being transferred to the lender bank account just six days before remittance of the loan to the assessee bank account in India , and absence of any other financial I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 9 transaction in the said bank account, screen shot , is adequate proof that it is not a regular business bank account of the lender and it raises suspicion of its genuineness and authenticity of the loan . The credit worthiness of the lender, of course has never been established at any stage, neither before the AO nor before the CIT(A), and not even before the Ld. PCIT in 263 proceedings. He prays for sustaining the addition of Rs. 51,01,811/-, for lack of credit worthiness. 10. We have gone through the materials available on record and have duly heard the Ld council appearing on behalf of the appellant and the Ld. D/R on behalf of the revenue at length. In our opinion the identity of the foreign lender ( now a Canadian Citizen of Indian origin ) Mr. Sailesh Joitabhai Patel , PP No: HM055198 ( Canadian ), is duly established and the movement of funds through wire transfer from TD Canada Trust ( The Toronto Domintion Bank ) to the assessee bank account in India ( Nirvana Resort and Spa ) is also established to have taken place on the 11 th of January , 2017 , so the identity and transfer of funds is proved but the question of creditworthiness is still not yet established. 11. No confirmation letter, from the lender Mr Patel is not brought on record, and it is not known for what purpose the funds has been transferred by Mr Patel to the assessee, whether by way of friendly loan or otherwise, and if on loan whether I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 10 the same is free of interest or not , and the tenure of such loan and as to how the repayment is to be made , and through which NRO account. 12. We are of the opinion that in this case , as rightly pointed out by the CIT(A), the credit worthiness of the loan lender , Mr. Patel , has not been established by submission of any documentary evidence , either by submission of copies of his tax returns filed before revenue authorities in Canada , or by submission of his bank statements for the full year with full name , address and identity of the banker, or any other papers showing any existence of his business , in fact it is also not declared as to whether the lender is a salaried person, or retired , or a business man . 13. Now coming to the argument of the Ld. AR, that credit worthiness of the foreign lender is not required to be proved, because the income of the Canadian Citizen cannot be brought to tax in India, this concept is not acceptable to us, because in the instant case the Canadian citizen is not being taxed in India on his income earned abroad. It is the fund that has been transferred from Canada to the bank account of the assessee in India, under the claim of un - secured, friendly, interest free loan, is the subject matter of enquiry. 14. In this context we would like to look into the observations of the Hon’ble jurisdictional High court in the case of: Tirath Ram Gupta Vs. Commissioner of Income Tax, Dated 14/09/2006 PUNJAB AND HARYANA HIGH COURT Citation: [2008] 304 ITR 145 (P&H) The assessee had shown a Foreign Gift of Rs.1 lakh from one Darshan Singh. The Assessing Officer asked the assessee to explain the foreign gift and relationship I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 11 with the donor. On being asked, the assessee stated that he was not aware about the business of the donor. The statement of the father of the donor, Shri Mukhtiar Singh was recorded and it was found that the gift was not genuine. On appeal,the Commissioner of Income-tax (Appeals) reversed this view taken by the Assessing Officer. On further appeal, the Tribunal set aside the order of the CIT(A) relying upon the judgment of this court in Lal Chand Kalra v. CIT [1981] 22 CTR P&H 135 and the judgment of the Delhi High Court in Sajan Dass and Sons v. CIT [2003] 264 ITR 435, holding that: 'the mere identification of the donor and the receipt of gift amount through banking channel was not sufficient to prove the genuineness of the gift. Since the claim of the gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but also his capacity to make the gift and that it had only been received as gift from the donor." Reference was also made to the judgments of the hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 and Sumati Dayal v. CIT [1995] 214 ITR 801. The Tribunal concluded that the gift was not genuine. 4. We have heard learned counsel for the parties and perused the findings recorded by the Tribunal. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 12 5. A gift is generally given out of natural love and affection and without any consideration, which necessarily denotes the closeness between the donor and the donee. It can be given either on some occasion or to help a relative or friend. To see the genuineness of a gift, the test of human probability is the most appropriate. A gift cannot be accepted as such to be genuine, merely because the amount has come by way of a cheque or draft through banking channel, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion is proved. Unless the recipient proves the genuineness thereof, the same can very well be treated to be an accommodation entry of the assessee's own money, which is not disclosed for the purpose of taxation. 15. Punjab And Haryana High Court Other Citation: [2007] 290 ITR 306, 205 CTR 624, 158 TAXMANN 306 Jaspal Singh Vs. Commissioner of Income Tax. Addition made on gifts received from various non-residents - creditworthiness and genuineness of the gifts - HELD THAT:- It is well-settled that mere identification of donor and showing the movement of gift amount through banking channel is not enough to prove genuineness of the gift. The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection. We have dealt with this aspect of the matter at length in our judgment, in Subhash Chander Sekhri v. Deputy CIT [2006 (7) TMI 160 - PUNJAB AND HARYANA HIGH COURT]. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 13 We are of the view that the concurrent findings of fact recorded by the authorities that the gifts in question were not genuine, are pure findings of fact and no substantial question of law arises. The appeal is accordingly dismissed. No.- ITA No. 256 of 2006 16. Dated.- September 15, 2006 014 (5) TMI 968 - PUNJAB & HARYANA HIGH COURT Commissioner of Income Tax, Chandigarh-II vs. Kiran Bala Genuineness of foreign gifts – Financial capability, identity, relation and occasion not proved - Held that:- Following Commissioner of Income Tax Versus M/s Udham Singh & Sons, Gor [2014 (3) TMI 467 - PUNJAB AND HARYANA HIGH COURT] - NRI gift from a stranger was neither genuine nor valid - mere identification of donor and showing the movement of gift amount through banking channel is not enough to prove genuineness of the gift - The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection - there being neither any relationship nor there being any circumstance to show natural love and affection of the donor for the donee nor there being any occasion to make such gifts to the assessee - the assesse was unable to show that there was any occasion or relationship to make the gift – Decided in favour of Revenue. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 14 No.- Income Tax Appeal No. 602 of 2006 Dated.- April 3, 2014 17. Now in respect of the judgments cited by the Ld. AR of the assessee, stated above in paragraph - 8 and relied upon by the assessee, it is seen that all the above cases are distinguishable on facts: i. In the Case of ITO vs. Balwan Singh ITA No. 2869/Del/2019 dated 07/08/2023; This case of unsecured loan where a loan confirmation has been filed, full bank statements of all the lenders has been filed, copy of Income Tax Returns of lenders has been filed, and all lenders appeared personally u/s 131 and explained the source of the loans in remand proceedings before the AO, to be out of sale of property, and it was also observed by the Tribunal that the lender did not receive any cash in his bank account in the vicinity of the transaction of loan. As such the views taken by the Tribunal was based on the above set of facts. ii. Gaurav Triyugi Singh Vs. ITO 423 ITR 531 (Bombay). In this instant case, loans were taken by the appellant from one Smt. Savitri Thakur through bank channel. Prior to the issue of cheques in favour of the appellant, the loan amount was found credited in the bank account of Smt. Savitri Thakur. The said amount were received by Smt. Savitri Thakur as gifts from her brother Sh. Rajendra Bahadur and sister Smt. Sarojini Thakur and the gifted amount received I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 15 by Smt. Savitri Thakur has been transferred to the appellant’s unsecured loans and thereafter this matter has been examined by the Department and the remarks of the Department are on the records. So, the decision of the Hon’ble Court was based on the above set of facts. iii. Nemi Chand Kothari vs. Commissioner of Income Tax And Onrs. dated 02.09.2023 (2003) 264 ITR 254 (Gauhati); In this instant case, unsecured loans were taken from creditors and in course of proceedings the ld. AO has examined all the creditors u/s 131 of the Act and assessment records of all the sub-creditors were also examined and it was found that the creditors as well as the sub-creditors were income tax assessees. In this case, the appellant had not only established identity of the creditors but also the genuineness of the loan taken by the appellant. As such the Hon’ble Court’s decision was based on the above facts. 18. In the instant case, before us, considering the entire material on records and the arguments of both the parties, we are of the opinion that in the instant case the creditworthiness of the loan lender Mr. Patel has not been conclusively proved. Full enquiry could not be done by the AO regarding genuineness of the transactions and the creditworthiness of the lender, in absence of all documentary evidences before him. However, in view of the fact that the major part of the loan amount of Rs.41,71,131/- has remained unpaid till date, approximately seven years I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 16 after receiving the loan (as per written submission of the Ld AR), it would be logical to conclude that the assessee and the loan creditor, are still connected with each other, and for all practical purpose the assessee should be still in a position to seek his cooperation, to establish the financial capacity of the loan creditor by obtaining and furnishing all necessary documents , like copies of the creditors tax returns in the country of his residence, bank statement containing full particulars with names , bank name , bank code, or any other papers and documents thought fit to establish the capacity of the loan creditor to advance the loan. Respectfully, enlightened by the observation of the Hon’ble jurisdictional High Court, (referred to in paragraph 14 to 16 above), we deem it fit and proper , that principles of natural justice would be served , if the matter is set aside to the file of the AO for examining the credit worthiness of the unsecured loan amount of Rs.51,01,811/- and the assessee shall furnish all necessary documents and evidences, as per provisions of law before the AO to establish the authenticity and creditworthiness of the loan creditor. Needless to say, the assessee should be allowed reasonable and proper opportunity in set aside proceedings, of being heard and for submission of all supporting documentary evidences required for establishing his case. I.T.A. No.4/Asr/2024 Assessment Year: 2017-18 17 19. In the result, the appeal of the assessee bearing ITA No. 4/Asr/2024 is allowed for statistical purposes. Order pronounced in the open court on 09.05.2024 Sd/- Sd/- (Dr. M. L. Meena) (UDAYAN DASGUPTA) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order