Mr. Mahendra Mohiniraj Gandhe, Ahmednagar V. Assistant Commissioner of Income-Tax, Circle , Ahmednagar

ITA 413/PUN/2020

AI Insights

The case involves Mahendra Mohiniraj Gandhe, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the additions made by the Assessing Officer for the assessment year 2016-17. The additions were made under section 41(1) for the cessation of a trading liability and under section 68 for an unexplained cash credit. The Tribunal examined the legal objections regarding the scope of limited scrutiny and the substantive additions made under sections 41(1) and 68. The Tribunal found no merit in the appellant's arguments and upheld the lower authorities' decisions.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 136176 (ITAT-PUNE)
• Duration Of Justice: 16 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-11-2022
• Assessment Year: misc
• Appeal Filed On: 22-09-2006
• Other Referred Cases: Shree Hanuman Trading Co Vs ITO, Durga Prasad More, Sumati Dayal
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HARI KRISHAN
• Section: 68; 143(3); 250; 13

Judgement Text

॥ आयकर अपीलीय न्यायाधिकरण, पुणे न्यायपीठ,“ ए” बेंच, पुणे में ॥ ITAT-Pune Page 1 of 13 IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “A” BENCH, PUNE BEFORE HON’BLE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपऩल सं. / ITA No.413/PUN/2020 निर्धारण वर्ा / Assessment Year : 2016-17 Mahendra Mohiniraj Gandhe, 270/31, Manish, Prof. Colony, Savedi Rd., Ahmednagar-414003 PAN : AAYPG2983J . . . . . . . अपऩलधथी / Appellant बनाम / V/s. Asstt. Commissioner of Income Tax, Circle, Ahmednagar. . . . . . . . प्रत्यथी / Respondent द्वारा / Appearances Assessee by : Shri Hari Krishan Revenue by : Shri Ramnath Murkunde सपिवधई की तधरऩख / Date of conclusive Hearing: 28/11/2022 घोर्णध की तधरऩख / Date of Pronouncement : 23/12/2022 आदेश / ORDER PER G. D. PADMAHSHALI, AM; By the present appeal, the order of Commissioner of Income Tax (Appeals)-2, Pune [for short “CIT(A)”] dt. 21/01/2020 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”] confirming the additions made under regular assessment vide order dt. 29/12/2016 by ACIT-Circle, Ahmednagar [for short “AO”] for the assessment year [for short “AY”] 2016- 17 is challenged on the following grounds; Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 2 of 13 “1. The Ld. Commissioner of Income Tax (Appeals) has erred in not deciding the legal objection taken by the assessee vide para 2 to para 2.3 of the written submission dated 05-21-2019 submitted on 01-01-2020 before the Ld. Commissioner of Income Tax (Appeals), that the Assessing officer has made the addition of Rs.18,05,281/- u/s 41(1) of the Income Tax Act on account of alleged cessation or remission of trading liability and Rs.10,00,000/- u/s 68 of the Income Tax Act, by transgressing the issue for which the case was selected under „limited scrutiny‟, without obtaining the necessary approval from the Pr. Commissioner of Income Tax. 2. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer was justified in treating the amount of Rs.18,05,280/- as cessation of liability within the provisions of section 41(1) of the Income Tax Act and adding the same to the total income of the assessee. 3. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the transfer of the liability of Rs.18,05,280/- on account of office rent payable to Mr. M.D. Gandhe from the balance sheet of his proprietary concern to his personal balance sheet, amounted to cessation or remission of liability as contemplated in section 41(1) of the Income Tax Act. 4. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer has correctly treated the amount of Rs.10,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act and has correctly added the same to the total income of the assessee. Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 3 of 13 5. The Ld. Commissioner of Income Tax (Appeals) has erred in upholding the addition of Rs.10,00,000/- as income of the Assessment Year 2016-17 u/s 68 of the Income Tax Act, on account of unsecure loan/deposit received by the assessee from Mr. R.B. Kakane in the Financial Year 2010-11, which was carried forward as opening balance as on 01-04-2015. 6. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the affidavit of MR RB Kakane filed by the assessee before the Assessing Officer in support of the genuineness of the credit appearing in the books of account of the assessee has no evidentiary value. 7. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal. 2. Tersely stated the facts of the case are; 2.1 The assessee is an individual filed his return of income [for short “ITR”] declaring total income of ₹38,44,950/- for the AY 2016-17, which was subjected to limited scrutiny under CASS regime to examine following two issues viz; i) Whether the share capital is genuine, and from disclosed sources ii) Whether sales turnover/receipt has been correctly offered to tax. Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 4 of 13 2.2 During the course of 143(3) assessment proceedings, after perusing capital account and considering submission of the assessee, Ld. AO framed the assessment with two additions viz; ₹18,05,281/- u/s 41(1) of the Act representing trading liability due to Mr. M. D. Gandhe and ₹10,00,000/- u/s 68 of the Act, representing amount of loan due to Mr. R. B. Kakane on both being transferred to capital account. 2.3 Aggrieved with impugned additions, the appellant preferred an appeal before the Ld. FAA, who finding no force in the submission of the appellant assessee, reverberated the views of Ld. AO and confirmed the impugned additions when claim remained unrequited with corroborative supporting. 2.4 The appellant alleging that both the Ld. TAB have erred in law and facts in making aforesaid additions is in appeal before the Tribunal on the grounds set forth hereinbefore at para 1. Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 5 of 13 3. After hearing to rival contentions of both the parties; and subject to the provisions of rule 18 ITAT, Rules,1963 perused case records, case laws relied upon by the appellant as well the respondent and duly considered the facts of the case in the light of settled legal position forewarned to either party. 4. Its shall suffice to state that, the ground number 1 is directed against non-adjudication legal plea by the Ld. FAA, whereas the ground number 2 & 3 challenges 41(1) addition and remaining grounds 4 to 6 are directed against addition made u/s 68 of the Act. For the sake of adjudication we shall deal with three issues in the aforestated manner. 5. Non adjudication of legal ground by Ld. FAA 5.1 It is alleged that, the Ld. CIT(A) failed to decide the legal objection raised by the appellant taken through his written submission placed at para 2 to 2.3 thereof, alleging transgression of scope of limited scrutiny into complete scrutiny without following the mandate laid by mother body i.e. CBDT. Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 6 of 13 5.2 It is apropos to state that, by the virtue of provisions of sub-section (5) & (6) of section 250 of the Act, the Ld. FAA shall bound to deal and dispose of all the grounds raised before him in an appeal by an order in writing stating the points of determination with reasons therefore. 5.3 However, the perusal of Form No 35 and para 4 of the first appellate order revealed that, the appellant failed to raise any such ground before the Ld. CIT(A), in the event, the present legal ground is factually inconsistent with the records, thus falls out of consideration for adjudication, therefore the ground raised by the appellant is meritless & deserves dismissal, and accordingly we hold so. 6. Addition u/s 41(1) of the Act. 6.1 Undisputedly, the assessee in the assessment year under consideration has transferred the accumulated balance standing to the credit of Mr. M. D. Gandhe to his capital account by a journal entry dt. 31/03/2016, and on being asked to showcase as Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 7 of 13 to why the said transfer should not be treated as remission of trading liability, the appellant placing on record a copy of personal balance sheet contended that, such liability was taken over as his personal liability into his personal books and accounted as such, the Ld. AO however pinpointing the contradiction therein which does not even contain the balance of investment in firm, concluded that the personal balance sheet placed on record as fabricated document, and then has added the sum u/s 41(1) of the Act, which the Ld. FAA countenanced in the light of various judicial precedents. 6.2 It shall be suffice to state that, the provisions of section 41(1) of the Act triggers in the event of any remission or cessation of trading liability either in the form of cash or in any other manner whatsoever which represents any loss or expenditure as claimed and allowed to the assessee under the provisions of Act. Further, it shall be worthy to note, such remission or cessation by virtue of explanation 1 to section 41(1) of the Act need not arise out of bi- Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 8 of 13 lateral act, meaning thereby a unilateral act would suffice to vouch such remission or cessation. 6.3 It is clear from the above provision that two pre-conditions must be fulfilled for applicability of section 41(1) of the Act; firstly, an allowance or deduction must have been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and secondly, during any previous year, the assessee must have obtained, whether in cash or in any other manner whatsoever, (i) any amount in respect of such loss or expenditure, or (ii) some benefit in respect of some trading liability by way of remission or cessation thereof. If these two conditions are fulfilled, the amount obtained by the assessee or the value of the benefit accruing to him would be deemed to be profits and gains of business or profession chargeable to income-tax as the income of the previous year u/s 41(1) of the Act. Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 9 of 13 6.4 Perusal of ledger account of Mr. M. D. Gandhe placed at page 10 r.w. page 21 of the paper book evidently establishes that, the accumulated balances represents the expenditure which were claimed and allowed to the appellant in the respective assessment years and same remained undisputed during proceedings before both the Ld. TAB. Where such accumulated balance by a unilateral act is carried to capital account in the guise of taking it to personal balance-sheet is unfortified from taxing u/s 41(1) of the Act, as it fulfils both the parameters envisaged therein, and for the reasons the act of Ld. TAB finds force in the decision of Hon’ble Karnataka High Court in the case of “Shree Hanuman Trading Co Vs ITO” reported in 328 ITR 662, whereby their lordship have categorically held that; “On such transfer of trading liability to capital, the assessee ceased to be liable for the interest liability which was claimed as deduction in the previous years. Therefore the cessation of liability in respect of interest credited to the account of the creditors was assessable under Section 41(1).” Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 10 of 13 6.5 In view of the aforestated discussion, the transfer of credit balance accumulated on account of expenditure claimed and allowed, to the capital account of the appellant fulfilling both the parameters laid in section 41(1) undoubtedly constitutes a remission of trading liability falling within the realm of section 41(1) of the Act, and we holding so find no infirmity with the orders of both the Ld. TAB, thus the ground number 2 & 3 are dismissed. 7. Addition u/s 68 of the Act. 7.1 Admittedly, the appellant in the assessment year under consideration has transferred the balance standing to the credit of Mr. R. B. Kakane to his capital account by a journal entry dt 31/03/2016, and on being asked to showcase as to why the said transfer should not be treated cash credit, the appellant placing on record an affidavit deposed by Mr. R.B. Kakane (one of the employee of the appellant) contended that, such liability was taken Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 11 of 13 over as personal liability and accounted as such in his personal books in order to clean up the unsecured loan from audited balance-sheet. However pinpointing said affidavit deposed starting extending loan to the appellant has found concluded extending refundable security deposit in relation to his employment with the appellant, the Ld. AO concluded same being vague and fabricated one, and consequently added the same u/s 68 of the Act, which the Ld. FAA reconfirmed after considering the even submission made before him. 7.2 Nota bene, the provisions relating to tax treatment of cash credit are given in section 68 which is triggered when any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year. The provisions of section 68 are attracted in event assessee failed to establish three ingredients Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 12 of 13 namely identification, credit worthiness and genuineness of credit with necessary evidentiary documents or proof. 7.3 Perusal of ledger account placed at page 11 r.w. page 21 of the paper book manifestly reveals that, the balance standing payable to one of the employee Mr. R. B. Kakane, by a journal entry dt. 31/03/2016 was credited to capital account of the appellant whereas the employee of the appellant in an affidavit inconsistently deposed confirming that, he had extended a loan to the assessee vis-à-vis security deposit in connection with his employment, the inconsistency in the deposition not only failed to prove genuineness of transaction but also the credit worthiness of employee giving loan to his employer- assessee, for the reason we see eye to eye with the findings of both the Ld. TAB, in the light of the Hon'ble Supreme Court decision in the case of “Durga Prasad More” 82 ITR 540 and “Sumati Dayal” 214 ITR 801 whereby their lordships have held that "the Courts and Tribunal have to judge the Mahendra Mohiniraj Gandhe, ITA No. 413/PUN/2020 AY: 2016-17 ITAT-Pune Page 13 of 13 evidences before them by applying the test of human probabilities after considering the surrounding circumstances" and when this test is applied to the present facts of the case, it is clear that the order of both the Ld. TAB in making & sustaining addition is based on direct evidence calling for no interference, consequently ground number 4 to 6 raised stands adjudicated against the assessee and in favour of the revenue. 8. Resultantly, the appeal of the appellant assessee is DISMISSED in aforestated terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this FRIDAY 23rd day of December, 2022. -S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 23 rd day of December, 2022. आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT(A)-1, Nashik (Mh-India) 4. The CIT (A) -1, Pune (Mh-India) 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय न्य य दिकरण, पुणे “ए” बेंच, पुणे / DR, ITAT, Pune “A” Bench, Pune. 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune.