JESUS SUDHIR LALL, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX-30(1), MUMBAI

ITA 5088/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8059 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 28-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Unexplained cash credit; Business income; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 142(1); 133(6); 37(1); 68; 28

Judgement Text

1 ITA 5088/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO 5088/MUM/2017 (ASSESSMENT YEAR 2012-13) SHRI JESUS SUDHIR LALL 3/2, FILKA BUILDING, DAFTARY ROAD, MALAD (E), MUMBAI 400 097 PAN : ABGPL4668L VS ACIT-30(1), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI ANANT PAI RESPONDENT BY SHRI RAJEEV GUBGOTRA DATE OF HEARING 10-12-2018 DATE OF PRONOUNCEMENT 21-12-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-14, MUMBAI DATED 14-06-2017 AND IT PERTAINS TO AY 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L A\\. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE MADE B\ THE LEARNED ASSESSING OFFICER TOWARDS PROFESSIONAL FEES PAID BY THE APPELLANT OF RS. 18.88. 349/-. WHICH WAS CLAIMED AS EXPENDITURE IN ASSESSMENT. THE APPELLANT SUBMITS THAT HE HAD CORRECTLY CLAIMED THE PROFESSIONAL FEES AS EXPENDITURE AND THAT THE SAID DISALLOWANCE MAY THER EFORE PLEASE BE DELETED IN APPEAL. 2 ITA 5088/MUM/2017 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE FOLLOWING ADDITIO NS MADE BY THE LEARNED ASSESSING OFFICER AS UNEXPLAINED CASH CREDITS U/S 68 OF THE I NCOME TAX ACT. 1961 IN RESPECT OF THE FOLLOWING LOANS' TAKEN BY THE APPELLANT SR N O. NAME OF LENDER AMOUNT OF LOAN (RS) 1 . MESSRS. BALAJI ENTERPRISES 5.00.000 2 . SMT. MUKTA RAI _ 22,45.000 3 . SHRI RAHUL FULFAGAR 5,00.000 4 . MS. RINKI RAJAN 3,00.000 TOTAL (RS) 35,45,000 THE LEARNED COMMISSIONER (APPEALS), HERE MORE PARTI CULARLY, FAILED TO APPRECIATE THAT THE APPELLANT HAD ADEQUATELY ESTABLISHED THE IDENTI TY OF THE LENDERS, THE GENUINENESS OF THE LOAN TRANSACTIONS AND THE CREDIT WORTHINESS OF LENDERS AND THEREBY DISCHARGED THE PRIMARY ONUS CAST ON HIM U/S 68 TO PROVE THE LO ANS. THE ADDITIONS U/S 68. AS CONFIRMED BY THE LEARNED C OMMISSIONER (APPEALS), ARE CLEARLY ERRONEOUS AND DESERVE TO BE DELETED IN APPE AL. 3. IN CONSEQUENCE OF TREATING THE LOAN RECEIVED FRO M MESSRS. BALAJI ENTERPRISES OF RS. 5.00,000 AS UNEXPLAINED CASH CREDIT U/S 68. THE INT EREST PAID OF RS. 55.500 BY THE APPELLANT ON THE SAID LOAN HAS ALSO BEEN DISALLOWED IN APPEAL. THIS DISALLOWANCE MAY LIKEWISE ALSO BE DELETED IN A PPEAL 4. BOTH THE LEARNED COMMISSIONER (APPEALS) AND THE LEARNED ASSESSING OFFICER ERRED IN PASSING THEIR RESPECTIVE ORDERS WITHOUT GRANTING TH E APPELLANT &N ADEQUATE OPPORTUNITY OF BEING HEARD. THE ORDERS PASSED BY THEM ARE IN CONTRAVENTION OF THE PRINCIPLES OF NATURAL JUSTICE AND HENCE, BAD IN LAW. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED HIS RETURN OF INCOME FOR AY 2012-13 DECLARING TOTAL INCOME OF RS. 89,78,500. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142(1) WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORISED REP RESENTATIVE OF THE ASSESSEE 3 ITA 5088/MUM/2017 APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAIL S, AS CALLED FOR. THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 31-03-2 015 DETERMINING TOTAL INCOME AT RS.1,95,87,350 BY MAKING ADDITION TOWARDS DISALLOWANCE OF EXPENSES U/S 37(1) FOR RS.18,88,349 AND DISALLOWANC E OF UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT FOR RS.85,45,000 AND ALSO DISALLOWANCE OF CONSEQUENTIAL INTEREST PAID ON SUCH UNSECURED LOANS FOR RS.1,75,500. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FI LED COMPLETE WRITTEN SUBMISSIONS ON BOTH ADDITIONS MADE BY THE AO WHICH HAS BEEN REPRODUCED ON PAGES 3 TO 6 OF THE ORDER OF LD.CIT(A). THE SUM AN D SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE LD.CIT(A) ARE THAT HE HAS PROVE D PRIMARY ONUS CAST UPON U/S 68 BY FILING NECESSARY DETAILS IN ORDER TO PROV E IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS, THEREFORE, MERELY FOR THE REASON THAT NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED, THE AO WA S ERRED IN MAKING ADDITION TOWARDS LOANS RECEIVED FROM CERTAIN PARTIE S WITHOUT CARRYING OUT FURTHER ENQUIRIES TO ASCERTAIN CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS. IN RESPECT OF DISALLOWANCE OF EXPENS ES U/S 37(1) CLAIMED AGAINST INTEREST ON CAPITAL RECEIVED FROM PARTNERSHIP FIRM, THE ASSESSEE SUBMITTED THAT INTEREST ON CAPITAL FROM FIRM IS A BUSINESS RECEIPT AGAINST WHICH EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WAS CLAIMED, 4 ITA 5088/MUM/2017 THEREFORE, THE AO WAS INCORRECT IN DISALLOWING EXPE NSES CLAIMED AGAINST INTEREST ON CAPITAL FROM FIRMS. 4. THE LD.CIT(A), AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE HAS INCURRED CERTAIN EXPENSES ON BEHAL F OF THE PARTNERSHIP FIRM AND SUCH EXPENSES ARE INCURRED IN CONNECTION WITH L OAN BORROWED FOR THE PURPOSE OF BUSINESS. THEREFORE, EXPENSES INCURRED ON BEHALF OF FIRM CANNOT BE ALLOWED AS DEDUCTION AGAINST INTEREST ON CAPITAL RE CEIVED FROM THE PARTNERSHIP FIRM. INSOFAR AS ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961 TOWARDS UNSECURED LOAN, THE LD.CIT(A) HAS ALLOWED PARTIAL RELIEF IN R ESPECT OF TWO PARTIES WHERE THE ASSESSEE HAS FILED COMPLETE DETAILS OF IDENTITY, GE NUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES; HOWEVER, CONFIRMED ADDITION MADE BY THE AO IN RESPECT OF FOUR PARTIES WHERE THE ASSESSEE COULD NOT SATISFACTORILY PROVE GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES. THE RELEVANT OBSERVATIONS OF THE LD.CIT(A) ARE EXTRACTED BELOW:- 11.1. GROUND 1: DISALLOWANCE U/S 37F 1) OF PROFESSIONAL FEES PAID AMOUNTING TO RS, 18,88.349/- GROUND NO. 1 RELATES TO DISALLOWANCE OF PROFESSIONA L FEES U/S 37(1) OF THE ACT. ACCORDING TO THE APPELLANT, SUCH EXPENSES WERE INCU RRED BY HIM FOR THE PURPOSE OF VALUING THE PROPERTIES/LAND OWNED BY HIM WHICH WERE EITHER MORTGAGED OR GIVEN BY WAY OF PERSONAL GUARANTEE TO THE BANKERS FOR THE LOAN TAKEN BY THE PARTNERSHIP FIRM M/S GENERAL COMPUTER SERVICES INTERNATIONAL. THE LD. AO HAS STATED IN THE REMAND REPORT THAT THE EXP ENSES RELATING TO THE LOAN RAISED IS TO BE CLAIMED BY THE FIRM AND NOT THE PAR TNER. I HAVE VERIFIED THE INVOICES FOR THE SAME WHICH HAV E BEEN PLACED ON RECORD. I HAVE CAREFULLY PERUSED THE SAME AND CONCUR WITH THE VIEW OF THE LD. AO THAT SUCH EXPENSES INCURRED BY THE APPELLANT ARE ON BEHA LF OF THE PARTNERSHIP FIRM AND AS SUCH AN EXPENSE OF THE PARTNERSHIP FIRM AND NOT THE PARTNER HIMSELF. THE LOANS RAISED WERE USED BY THE FIRM. THEREFORE, ANY EXPENSES WHICH ARE IN CONNECTION WITH RAISING THE LOAN BY THE FIRM CANNOT BE ALLOWED IN THE HANDS OF 5 ITA 5088/MUM/2017 THE APPELLANT. THUS, THE AO HAS RIGHTLY DISALLOWED THE PROFESSIONA L FEES OF RS. 18,88,349/-. ACCORDINGLY, THIS GROUND IS DISMIS SED. 11.2. GROUND 2: ADDITION U/S 68 OF RS. 85,45,000/- GROUND NO. 2 RELATES TO DISALLOWANCE OF THE UNSECUR ED LOANS U/S 68 OF THE ACT. THE APPELLANT HAS SUBMITTED THE REQUISITE DETAILS R ELATED TO THE 6 LENDERS. THE AO HAS IN HIS REMAND REPORT STATED THAT EXCEPT FOR ONE PARTY NO ONE HAS APPEARED OR FILED REPLY TO NOTICE U/S 133(6) AND HE NCE THE ADDITIONS SHOULD BE CONFIRMED. I FIND THAT MANY OF THE LOAN CREDITORS H AVE PREPARED THE REPLY OR SENT THE REPLY TO THE AO IN RESPONSE TO NOTICES U/S 133( 6). MOREOVER, THE DETAILS ALREADY FILED BEFORE THE AQ BY 'THE APPELLANT DURIN G THE REMAND PROCEEDINGS SHOULD HAVE BEEN EXAMINED BY THE AO INDEPENDENTLY T O DECIDE THE MATTER IN EACH CASE. I HAVE CAREFULLY PERUSED THE DETAILS SUBMITTED BY T HE APPELLANT WITH RESPECT TO EACH OF THE UNSECURED LOAN CREDITORS AND MY DECISION IS AS UNDE R: (A) LOAN TAKEN FROM M/S BALAII ENTERPRISES ( PROP. MR. HEMANT DANI) OF RS. 5,00.OOP/- THE APPELLANT HAS FILED THE LEDGER ACCOUNT OF THE S AID PARTY ALONG WITH ACCOUNTS CONFIRMATION, HIS OWN BANK STATEMENT HIGHLIGHTING R ECEIPT OF LOAN, BANK STATEMENT OF THE SAID PARTY HIGHLIGHTING THE LOAN G IVEN AND COPY OF PAN. THE APPELLANT HAS NOT FILED COPY OF ITR, BALANCE SHEET, PROFIT & LOSS ACCOUNT OF THE SAID PARTY TO PROVE CREDITTWORTHINESS OF THE PARTY. BANK STATEMENT OF LENDER SHOWS EQUIVALENT RECEIPT FEW DAYS BACK. THE SOURCE HAS BEEN EXPLAINED IN GENERAL MANNER THAT IT IS OUT OF ACCUMULATED EARNIN GS. TO CONCLUDE, THE CREDITWORTHINESS IN THIS CASE IS NOT PROVED AND HEN CE ADDITION OF RS. 5,00,000/- U/S 68 IS SUSTAINED. LOAN TAKEN FROM LATE MRS. MUKTA RAI OF RS. 22,45.000/- THE APPELLANT HAS FILED THE LEDGER ACCOUNT OF THE S AID PARTY ALONG WITH CONFIRMATION OF ACCOUNTS SIGNED BY HUSBAND AS THE L ENDER IS NO MORE, HIS OWN BANK STATEMENT HIGHLIGHTING RECEIPT OF LOAN, BANK S TATEMENT OF THE SAID PARTY HIGHLIGHTING THE LOAN GIVEN, COPY OF PAN AND COPY O F HER ITR ACKNOWLEDGEMENT FOR A.Y 2011-2012. RETURN FOR AY 20 12-13 WHEN THE LOAN WAS ADVANCED HAS NOT BEEN FILED. BANK STATEMENT OF LENDER SHOWS RECEIPT OF RS. 2L,14 ,000/- ON 2/11/2011 AND THE LOAN OF RS. 22,45,000/- WAS GIVEN ON 03/11/ 2011. NO CLEAR CUT EXPLANATION ABOUT CREDIT ENTRY OF RS. 21,11,400/- O N 2.11.2011 IN THE BANK ACCOUNT OF THE LENDER HAS BEEN FILED. ONLY A GENERA L EXPLANATION THAT SHE WAS WORKING WITH VIJAYA BANK FOR OVER 25 YEARS AND THE LOAN WAS FROM HER PERSONAL FUNDS HAS BEEN SUBMITTED. SINCE HER BALANCE SHEET AND PROFIT & LOSS HAS NOT B EEN PROVIDED AS ALSO THE NATURE OF RECEIPT IN HER BANK ACCOUNT OF RS, 21 ,14,000/- ON 02.11.2011 (JUST BEFORE ADVANCING JOAN TO APPELLANT) HAS NOT B EEN EXPLAINED, HER CREDITWORTHINESS CANNOT BE ASCERTAINED. HENCE, ADDITION OF RS. 22,45,000/- U/S 68 OF THE ACT IS SUSTAINED. (C) LOAN TAKEN FROM MR. RAHUL D. FULFAGAR OF RS. 5,00,000/- THE APPELLANT HAS ONLY PROVIDED THE LEDGER ACCOUNT OF THE SAID PARTY ALONG WITH HIS OWN BANK STATEMENT HIGHLIGHTING RECEIPT OF LOAN. SINCE PAN NUMBER, 6 ITA 5088/MUM/2017 ITR ACKNOWLEDGEMENT, BANK STATEMENT, BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE LENDER HAS NOT BEEN PROVIDED, THE ID ENTITY, GENUINENESS AND THE CREDITWORTHINESS OF THE PARTY CANNOT BE ASCERTA INED . HENCE, DISALLOWANCE OF RS. 5,00,000/- U/S 68 OF THE ACT IS SUSTAINED. (D) LOAN TAKEN FROM MS. RINKV RAIAN OF RS. 3,00,000/- APPELLANT HAS PROVIDED THE LEDGER ACCOUNT OF THE SA ID PARTY ALONG WITH CONFIRMATION OF ACCOUNTS, HIS OWN BANK STATEMENT HI GHLIGHTING RECEIPT OF LOAN AND BANK STATEMENT OF THE SAID PARTY HIGHLIGHTING T HE LOAN GIVEN. AS REGARDS THE CREDITWORTHINESS OF THE PARTY, ONLY A GENERAL S TATEMENT HAS BEEN MADE THAT SHE IS EMPLOYED IN DUBAI SINCE 2010 AND THE LO AN HAS BEEN GIVEN OUT OF HER PERSONAL SAVINGS. SINCE HER INCOME TAX RETURN, BALANCE SHEET AND PROFIT & LOSS HAS NOT BEEN PROVIDED AS ALSO THE NATURE OF RE CEIPT IN HER BANK OPENING BALANCE (OUT OF WHICH LOAN BEEN ADVANCED TO THE APP ELLANT) HAS NOT BEEN EXPLAINED, HER CREDITWORTHINESS CANNOT BE ASCERTAIN ED. HENCE, ADDITION OF RS.3,00,000 U/S 68 OF THE ACT IS SUSTAINED. (E) LOAN TAKEN FROM MS. VIDHEE GARQ OF RS.10,00,000/ - THE APPELLANT HAS FILED THE LEDGER ACCOUNT OF THE S AID PARTY ALONG WITH CONFIRMATION OF ACCOUNTS SIGNED BY FATHER OF THE LE NDER WHO IS A NON-RESIDENT AND LIVES IN USA, HIS OWN BANK STATEMENT HIGHLIGHTI NG RECEIPT OF LOAN, BANK STATEMENT OF THE SAID PARTY HIGHLIGHTING THE LOAN G IVEN, COPY OF ITR ACKNOWLEDGEMENT OF AY 2011-12, COPY OF ITR ACKNOWLE DGEMENT OF AY 2012-13 ALONG WITH BALANCE SHEET, COMPUTATION OF IN COME AND COPY OF PAN, HENCE, THE IDENTITY OF THE PARTY AND THE NATURE AND GENUINENESS OF THE TRANSACTION IS ESTABLISHED. AS REGARDS THE CREDITWO RTHINESS OF THE PARTY, HER COMPUTATION OF TOTAL INCOME AND BALANCE SHEET HAS B EEN PROVIDED, WHICH DULY REFLECTS HER TOTAL INCOME WHICH IS FD INCOME. THE L OAN HAS BEEN GIVEN BY HER FROM HER OVERDRAFT ACCOUNT. AS PER HER BALANCE SHEE T, IT IS CLEAR THAT SHE OWNS FD'S WORTH RS. 36 LACS (APPROX.) WHICH WOULD H AVE BEEN PLEDGED AGAINST THE OD. HENCE, DISALLOWANCE OF RS. 10,00,000/- U/S 68 OF THE ACT IS HEREBY DELETED. (F) LOAN TAKEN FROM M/S SML PROPERTIES PUT LTD OF R S. 40.00.000/- THE APPELLANT HAS FILED THE LEDGER ACCOUNT OF THE S AID PARTY ALONG WITH CONFIRMATION OF ACCOUNTS, HIS OWN BANK STATEMENT HI GHLIGHTING RECEIPT OF LOAN, BANK STATEMENT OF THE SAID PARTY HIGHLIGHTING THE L OAN GIVEN, COPY OF PAN, COPY OF ROC MASTER DATA, COPY OF ITR SHOWING NIL IN COME, COPY OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE SAID PARTY S HOWING NO BUSINESS ACTIVITIES APART FROM LOANS RECEIVED AND PAID, COPY OF LEDGER CONFIRMATION FROM JND EDU MANAGEMENT SERVICES PVT. LTD., THE PARTY FR OM WHOM THIS COMPANY HAS RECEIVED ADVANCE, COPY OF ITR FILED ACKNOWLEDGM ENT OF JND EDU MANAGEMENT SERVICES PVT. LTD. AND COPY OF THE BALAN CE SHEET AND PROFIT & LOSS ACCOUNT OF 3ND EDU MANAGEMENT SERVICES PVT. LT D. THERE IS PRIVATE SCHOOL BEING RUN BY THE 3ND EDU MANAGEMENT SERVICES PVT. LTD. SHOWING REVENUE OF RS. 8.20 CRORES AND PROFIT OF RS. 1.04 C RORE. HENCE, THE IDENTITY AND CREDITWORTHINESS OF LENDER ALONG WITH GENUINENE SS OF THE TRANSACTION IS FOUND TO BE PROVED IN THIS CASE. HENCE, ADDITION OF OF RS. 40,00,000/-U/S 68 OF THE ACT IS HEREBY DELETED. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. 7 ITA 5088/MUM/2017 11.3. GROUND 3: DISALLOWANCE U/S 36(1)(III) OF INTEREST PAID OF RS. 1.75.5007- GROUND N O. 3 RELATES TO DISALLOWANCE OF INTEREST PAID ON UNSEC URED LOANS TO M/S BALAJI ENTERPRISES AND MS. VIDHEE GARG. SINCE T HE SAME IS ONLY CONSEQUENTIAL TO THE OUTCOME OF GROUND NO. 2 ABOVE, THE LD. AO IS DIRECTED TO ALLOW/DISALLOW THE SAME W.R.T DECISION RENDERED AT GROUND NO. 2 ABOVE. FOR STATISTICAL PURPOSE, THIS GROUND IS TAKEN AS PARTLY ALLOWED. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS DISALLOWANCE OF EXPENSES CLAIMED AGAINST INTERES T ON CAPITAL RECEIVED FROM FIRM. THE LD.DR FOR THE ASSESSEE, AT THE TIME OF H EARING FAIRLY ACCEPTED THAT DEDUCTION CLAIMED AGAINST INTEREST ON CAPITAL IS NO T INTEREST PAID ON LOANS, BUT OTHER EXPENSES INCLUDING PROFESSIONAL FEES PAID IN CONNECTION WITH INVESTMENTS MADE IN PARTNERSHIP FIRM. SINCE INTEREST ON CAPITA L IS A BUSINESS RECEIPT ASSESSABLE U/S 28 OF THE INCOME-TAX ACT, 1961, CONS EQUENT EXPENDITURE INCURRED IN RELATION TO CAPITAL IS WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS CAN BE ALLOWED AGAINST INTEREST ON CAPITAL . 6. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE ASSESSEE CLAIMED CERTAIN EXPENSES INCLUDIN G PROFESSIONAL FEES PAID IN CONNECTION WITH LOAN BORROWED AND USED BY THE PARTN ERSHIP FIRM AGAINST INTEREST ON CAPITAL RECEIVED FROM PARTNERSHIP FIRM. THE EXPENSES CLAIMED BY THE ASSESSEE AGAINST INTEREST ON CAPITAL FROM THE P ARTNERSHIP FIRM ARE PROFESSIONAL FEES AND OTHER EXPENSES INCURRED IN CO NNECTION WITH LOAN RAISED FOR THE PARTNERSHIP FIRM. IN ORDER TO GET CREDIT F OR EXPENSES AGAINST INTEREST INCOME, THE EXPENSES SHOULD BE IN THE NATURE OF INT EREST PAID ON LOAN AND 8 ITA 5088/MUM/2017 OTHER EXPENSES EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME INCLUDING COMMISSION OR REMUNER ATION TO A PERSON FOR THE PURPOSE OF REALISING SUCH INTEREST INCOME. IN THIS CASE, THE LOWER AUTHORITIES HAVE BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE HAS CLAIMED EXPENSES INCURRED ON BEHALF OF THE FIRM AND ALSO IN CONNECTION WITH THE LOAN BORROWED FOR THE PURPOSE OF FIRM. THEREFORE, WE AR E OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN DISALLOWING EXPENSES CLAIM ED AGAINST INTEREST ON CAPITAL RECEIVED FROM PARTNERSHIP FIRM. THE LD.CIT (A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY AFFIRMED THE FINDING OF THE AO. WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD.CIT(A) AND ACCORDIN GLY REJECT GROUND TAKEN BY THE ASSESSEE. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITION U/S 68 IN RESPECT OF UNSECURED LOANS. THE AO HAS MADE ADDITI ON OF RS.85,45,000 U/S 68 OF THE INCOME-TAX ACT, 1961 IN RESPECT OF LOAN RECE IVED FROM SIX PARTIES ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE CREDITWORT HINESS OF THE PARTIES BY FILING THEIR INCOME-TAX RETURNS AND BANK STATEMENTS . ACCORDING TO THE AO, ALTHOUGH THE ASSESSEE HAS FILED PAN IN CERTAIN CASE S TO PROVE THE IDENTITY, BUT FAILED TO PROVE THE CREDITWORTHINESS OR FINANCIAL S TRENGTH OF THE CREDITORS TO LEND SUCH A SUM WITH NECESSARY EVIDENCES INCLUDING THEIR INCOME-TAX RETURNS AND BANK STATEMENTS. THE LD.CIT(A) HAS ALLOWED PAR TIAL RELIEF IN RESPECT OF LOAN 9 ITA 5088/MUM/2017 RECEIVED FROM VIDHEE GARG FOR RS.10 LAKHS AND M/S S ML PROPERTIES PVT LTD FOR RS.40 LAKHS, WHERE THE ASSESSEE FILED COMPLETE DETA ILS OF IDENTITY AND CREDITWORTHINESS BY FILING ITR ACKNOWLEDGEMENT FOR RELEVANT FINANCIAL YEARS AND ALSO THEIR BANK STATEMENTS. IN RESPECT OF REMA INING FOUR PARTIES, THE LD.CIT(A) CONFIRMED ADDITION MADE BY THE AO ON THE GROUND THAT THE ASSESSEE FAILED TO FILE COMPLETE DETAILS IN ORDER TO PROVE C REDITWORTHINESS OF THE PARTIES. 8. THE AR FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE HAS DISCHARGED PRIMARY ONUS CAST UPON U/S 68 IN ORDER T O PROVE IDENTITY AND GENUINENESS OF TRANSACTIONS, MERELY FOR THE REASON THAT 133(6) NOTICES WERE RETURNED UNSERVED, THE AO CANNOT MAKE ADDITION WITH OUT CARRYING OUT FURTHER VERIFICATIONS IN ORDER TO ASCERTAIN CREDITWORTHINES S OF THE PARTIES. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS DONE WHATEV ER IT COULD POSSIBLY DO BY FILING THE IDENTITY INCLUDING CONFIRMATIONS AND THE IR PAN, BUT COULD NOT OBTAIN THEIR INCOME-TAX RETURNS AND BANK STATEMENTS BECAUS E THE PARTIES WERE NOT CO-OPERATIVE. THE LD.AR FURTHER SUBMITTED THAT WHE N IDENTITY HAS BEEN PROVED BY FILING THEIR PAN, THE AO IS WELL AWARE OF THEIR PAN DETAILS WHICH HE COULD HAVE OBTAINED BY CARRYING OUT FURTHER ENQUIRIES, BU T THE AO HAS NOT DONE ANYTHING MORE THAN ISSUING NOTICES U/S 133(6) OF TH E ACT. THE LD.AR FURTHER SUBMITTED THAT THE LOANS WERE TAKEN THROUGH ACCOUNT PAYEE CHEQUES FOR WHICH THE ASSESSEE HAS FILED BANK STATEMENTS OF THE PARTI ES. THE ASSESSEE ALSO FILED 10 ITA 5088/MUM/2017 PAN EXCEPT IN ONE CASE. THE ASSESSEE ALSO FILED CO NFIRMATION FROM CERTAIN PARTIES. WHEN ALL THESE EVIDENCES ARE FILED TO PRO VE IDENTITY AND GENUINENESS OF TRANSACTIONS, MERELY FOR NON FILING OF INCOME-TA X RETURNS, THE AO CANNOT MAKE ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS ORISSA CORPORATION PVT LTD (1986) 159 ITR 78 (SC). 9. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTIN G THE ORDER OF THE LD.CIT(A) SUBMITTED THAT THE LD.CIT(A) HAS APPRECIA TED THE FACTS IN EACH CREDITORS CASE BY CONSIDERING EVIDENCES FILED BY T HE ASSESSEE TO COME TO THE CONCLUSION THAT IN CASE OF FOUR PARTIES, THE ASSESS EE COULD NOT SATISFACTORILY PROVE GENUINENESS OF TRANSACTIONS AND CREDITWORTHIN ESS OF PARTIES, ALTHOUGH IDENTITY HAS BEEN PROVED BY FILING PAN AND OTHER DE TAILS. THEREFORE, HE HAS RIGHTLY CONFIRMED ADDITION MADE BY THE AO AND HENCE , HIS ORDER SHOULD BE UPHELD. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD.CIT(A) HAS CONFIRMED UNSECURED LOAN RECEIVED FROM M/S BALAJI ENTERPRISES FOR RS.5 LAKHS ON THE GROUND THAT THOUG H THE ASSESSEE HAS FILED CONFIRMATION ALONGWITH BANK STATEMENT OF THE PARTIE S, BUT FAILED TO FILE THEIR INCOME-TAX RETURNS ALONGWITH FINANCIAL STATEMENTS T O PROVE CREDITWORTHINESS. THE LD.CIT(A) FURTHER OBSERVED THAT ON PERUSAL OF B ANK STATEMENTS IT WAS 11 ITA 5088/MUM/2017 NOTICED THAT EQUIVALENT AMOUNT OF MONEY HAS BEEN RE CEIVED FEW DAYS BACK IN THE BANK ACCOUNT OF THE CREDITORS. THEREFORE, HE C AME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT EXPLAINED THE SOURCE OF INCOME TO EXPLAIN UNSECURED LOAN OF RS. 5 LAKHS GIVEN TO THE ASSESSEE. IN RESPECT O F LOAN RECEIVED FROM M/S MUKHA RAI OF RS.22,45,000, THE LD.CIT(A) HAS ACCEPT ED THE FACT THAT THE ASSESSEE HAS FILED CONFIRMATION ALONGWITH LEDGER EX TRACT AND BANK STATEMENT TO PROVE THE IDENTITY. THE LD.CIT(A) FURTHER OBSER VED THAT THE ASSESSEE ALSO FILED INCOME-TAX RETURNS OF THE CREDITOR FOR AY 201 1-12. THE LD.CIT(A) CONFIRMED ADDITION MADE BY THE AO ON THE GROUND THA T NO RETURN OF INCOME HAS BEEN FILED FOR AY 2012-13 AND ALSO NO CLEAR CUT EXPLANATION HAS BEEN GIVEN IN RESPECT OF SOURCE OF INCOME TO EXPLAIN LOAN GIVE N TO THE ASSESSEE. SIMILARLY, IN RESPECT OF LOAN TAKEN FROM MS.RINKY RAJAN FOR RS .3 LAKHS, THE LD.CIT(A) ACCEPTED THE FACT THAT ASSESSEE HAS FILED CONFIRMAT ION ALONGWITH BANK STATEMENT, BUT HE CONFIRMED ADDITION MADE BY THE A O ONLY FOR THE REASON THAT NO INCOME-TAX RETURN HAS BEEN FILED BY THE CREDITOR IN ORDER TO PROVE CAPACITY TO EXPLAIN SOURCE OF INCOME IN RESPECT OF LOAN GIVE N TO THE ASSESSEE. AS REGARDS LOAN FROM MR. RAHUL D FULPAGAR FOR RS.5 LAK HS, THE LD.CIT(A) HAS RECORDED CATEGORICAL FINDING THAT NO DETAILS INCLUD ING THEIR PAN AND ITR ACKNOWLEDGEMENT COPY HAS BEEN FILED IN ORDER TO PRO VE GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS, BUT FILED LEDGER ACCOUNT OF THE SAID PARTY 12 ITA 5088/MUM/2017 ALONGWITH ASSESSEES OWN BANK STATEMENT HIGHLIGHTIN G RECEIPT OF LOAN BY ACCOUNT PAYEE CHEQUE. THEREFORE, HE OPINED THAT LO AN RECEIVED FROM MR. RAHUL D FULPAGAR OF RS.5 LAKHS IS NOT EXPLAINED. 11. IN THIS FACTUAL BACKGROUND, IF WE EXAMINE THE A DDITION CONFIRMED BY LD.CIT(A) IN RESPECT OF LOAN RECEIVED FROM M/S BALA JI ENTERPRISES, WE FIND THAT THE ASSESSEE HAS FILED CONFIRMATION FROM THE PARTY, BANK STATEMENT AND THEIR PAN. ONCE THE PRIMARY ONUS CAST UPON U/S 68 HAS BE EN DISCHARGED BY FILING NECESSARY EVIDENCE, IT IS FOR THE AO TO CARRY OUT F URTHER ENQUIRIES IN ORDER TO ASCERTAIN CREDITWORTHINESS OF THE PARTIES. HAD IT BEEN A CASE OF THE AO THAT THE ASSESSEE COULD NOT FILE EVEN PAN, THEN CERTAINLY, T HE CREDITS FOUND IN THE NATURE OF UNSECURED LOANS WOULD HAVE COME WITHIN TH E PURVIEW OF PROVISIONS OF SECTION 68 OF THE ACT. SINCE THE ASSESSEE HAS F ILED CONFIRMATION ALONGWITH PAN, THE AO OUGHT TO HAVE CARRIED OUT FURTHER ENQUI RIES BY EXERCISING HIS POWERS TO ASCERTAIN THE CREDITWORTHINESS OF THE PAR TIES, BUT THE AO HAS MADE ADDITION ONLY FOR THE REASON THAT NOTICES U/S 133(6 ) WERE RETURNED UNANSWERED WITHOUT CARRYING OUT FURTHER ENQUIRIES. THEREFORE , WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) WAS INCORRECT IN CONFIRMING ADDITION MADE BY THE AO IN RESPECT OF LOAN RECEIVED FROM M/S BALAJI ENTERPRISE S FOR RS.5 LAKHS. ACCORDINGLY, WE DIRECT THE AO TO DELETE ADDITION MA DE IN RESPECT OF LOAN TAKEN FROM M/S BALAJI ENTERPRISES. IN RESPECT OF LOAN TA KEN FROM LATE MRS. MUKHTA 13 ITA 5088/MUM/2017 RAI, THERE IS NO DENIAL OF THE FACT THAT THE ASSESS EE HAS FILED LEDGER ACCOUNT, CONFIRMATION LETTER, BANK STATEMENT, PAN AND ITR AC KNOWLEDGEMENT FOR AY 2011-12. WHEN ALL THESE EVIDENCES ARE PLACED BEFOR E THE AO, THE AO COULD HAVE CARRIED OUT NECESSARY ENQUIRIES IN ORDER TO AS CERTAIN CREDITWORTHINESS OF THE PARTIES. BUT, THE AO HAS MADE ADDITION MERELY FOR THE REASON THAT NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED WITHOUT CA RRYING OUT FURTHER ENQUIRIES. ON THE OTHER HAND, THE ASSESSEE HAS EXP LAINED BEFORE THE AO THAT THE CREDITOR IS HAVING CAPACITY TO EXPLAIN UNSECURE D LOAN GIVEN TO THE ASSESSEE AND SUCH LOAN HAS BEEN GIVEN THROUGH PROPER BANKING CHANNEL. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) WAS I NCORRECT IN CONFIRMING ADDITION MADE BY THE AO IN RESPECT OF LOAN RECEIVED FROM LATE MRS. MUKTHA RAI. ACCORDINGLY WE DIRECT THE AO TO DELETE ADDITI ON OF RS.25,45,000 IN RESPECT OF LOAN TAKEN FROM LATE MRS. MUKTHA RAI. 12. COMING TO LOAN TAKEN FROM MR. RAHUL D FULPAGAR FOR RS.5 LAKHS. IT IS AN ADMITTED FACT THAT EXCEPT FILING LEDGER ACCOUNT OF THE SAID PARTY, THE ASSESSEE COULD NOT FILE EVEN PAN TO ESTABLISH IDENTITY OF TH E PARTIES. NO DETAILS HAVE BEEN FILED INCLUDING ITR ACKNOWLEDGEMENT AND BANK S TATEMENT TO PROVE GENUINENESS AND CREDITWORTHINESS. SIMILARLY, IN RE SPECT OF LOAN TAKEN FROM MS. RINKY RAJAN OF RS.3 LAKHS, THE ASSESSEE HAS FILED A SIMPLE CONFIRMATION WITHOUT SPECIFYING EVEN PAN. NO DETAILS HAVE BEEN FILED IN CLUDING BANK STATEMENT IN 14 ITA 5088/MUM/2017 ORDER TO EXPLAIN SOURCE OF INCOME. FURTHER, THE AS SESSEE HAS GIVEN A GENERAL STATEMENT TO EXPLAIN SOURCE OF INCOME AND STATED TH E LOAN HAS BEEN GIVEN OUT OF PERSONAL SAVINGS. SINCE THE ASSESSEE COULD NOT FILE NECESSARY DETAILS IN ORDER TO PROVE CREDITWORTHINESS OF THE PARTIES, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) WAS RIGHT IN CONFIRMING ADDITION MADE BY THE AO IN RESPECT OF LOAN TAKEN FROM MR. RAHUL D FULPAGAR AND MRS. MUKTH A RAI. ACCORDINGLY, WE CONFIRM THE FINDINGS OF LD.CIT(A). INSOFAR AS ADDI TION MADE TOWARDS DISALLOWANCE OF INTEREST, WE FIND THAT ADDITION MAD E BY THE AO TOWARDS INTEREST IS CONSEQUENTIAL TO UNSECURED LOAN TAKEN B Y THE ASSESSEE. SINCE WE HAVE DELETED ADDITION MADE BY THE AO IN RESPECT OF LOAN TAKEN FROM BALAJI ENTERPRISES AND LATE MRS. MUKTHA RAI, CONSEQUENT IN TEREST PAID ON THOSE TWO LOANS IS ALSO DIRECTED TO BE DELETED. INSOFAR AS I NTEREST PAID ON OTHER LOANS, THE ADDITION MADE BY THE AO TOWARDS INTEREST IS CONFIRM ED. 13 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 -12-2018 . (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST DECEMBER, 2018 PK/- 15 ITA 5088/MUM/2017 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI