SHRI DARPAN JAIN, JALANDHAR V. INCOME TAX WARD - 1(1), JALANDHAR

ITA 577/ASR/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1452 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-09-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 03-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Principle of natural justice; TDS; Set aside
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 577/Asr/2019 Assessment Year: 2011-12 Sh. Darpan Jain, M/s K.K. Rubber Industries, Kapurthala Road, Basti Bawa Khel, Jalandhar [PAN: AFEPJ 7026E] Vs. Income Tax Officer, Ward 1(1), Jalandhar (Appellant) (Respondent) Appellant by : Sh. J. S. Bhasin, Adv. Respondent by: Ms. Amanpreet Kaur, Sr. DR Date of Hearing: 21.09.2022 Date of Pronouncement: 10.10.2022 ORDER Per Dr. M. L. Meena, AM: This appeal has been filed by the assessee against the order dated 06.06.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Jalandhar, in respect of Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal: ITA No. 577/Asr/2019 Darpan Jain v. ITO 2 “1. That in the facts and circumstances of the case, the Id.CIT(A) was not justified in upholding the initiation of proceedings by the Id.AO u/s.147/148, on wholly erroneous and insufficient grounds. 2. That the Id. CIT(A), was not justified in endorsing the AO's action, by way of her most arbitrary and sketchy findings, that Rs.52,00,000/- received from one Smt Anita Chadda, was an unexplained credit u/s.68, brushing aside most plausible explanation with evidence, filed in appeal. 3. That when the Id.AO failed to summon the said lady u/s.131, despite assessee's request, the Id. CIT(A) erred to hold that onus was still on assessee to produce her. 4. That addition by way of disallowance of Rs.3,60,000/- out of interest u/s.36(l)(iii) has been wrongly confirmed by the Id.CIT(A) without proper discussion. 5. That the order under appeal is most arbitrary, against the principles of natural justice, and hence liable to be set aside.” 3. During the course of assessment proceedings, in compliance to quarry of the AO, the assessee furnished ledger copy of capital account of M/s Pushkar Udyog (Assesses Proprietor Concern) and contented that he has received an amount of Rs.52 Lakhs on 05.04.2010 as loan through bank transaction from Smt. Anita Chadha. The AO, vide order sheet entry dated 11.12.2018, required the counsel of the assessee to produce Smt. Anita Chadha for recording her statement regarding raising personal loan of Rs.52 Lakhs by the assessee. The AO held that as the assesse failed to produce to produce Smt. Anita Chadha on 19.12.2018 nor any body attended the proceedings on the said date, the initial onus was not ITA No. 577/Asr/2019 Darpan Jain v. ITO 3 discharged by the assessee. Accordingly, the AO made an addition of Rs.52 Lakhs being unexplained credit u/s 68 of the Act to the returned Income. 4. In appeal, the Ld. CIT (A) has confirmed the addition by observing as under: “5.2 I have carefully considered the facts of the case and submissions of the appellant. During the relevant financial year, the assessee introduced capital of Rs.58,27,887/- in his capital account with M/s Pushkar Udhyog. The assessing officer has accepted explanation regarding addition of Rs.6,22,347/- and added R.s.52 Lacs. The assessee has claimed that this amount was received from Smt. Anita Chadha. It was explained that assessee’s relation with Mrs. Anita Chadha had gone sour due to certain ongoing court cases, therefore, the assessee was not able to produce her for confirmation before the assessing officer. It is explained by the Ld. Counsel that loan raised on interest, front one Smt. Anita Chadha, resident of 689-R Model Town, Jalandhar, by way of a cheque, credited in assessee’ s SB account No.38787 with SBOP on 05.04.2010. Since it was an interest bearing loan, a copy of debit note dated 31.03.2011 for Rs.3,25,000/, for the period 01.11.2010 to 31.03.2011, raised by Smt. Anita Chadha, bearing her name, address, phone Nos., her PAN and also the signatures of her husband, was filed before the ld. ITO. It was no less than a confirmation of the payer. It is observed that the assessee has not brought on record any proof of court case due to which the assessee could not file confirmation of loan creditor. No confirmation of advancing of loan from Smt. Anita Chadda was filed by the assessee. There is only copy of debit note of interest on which somebody has put initials as for Anita Chadda, Even, the initials on the copy of one interest payment for 5 months on 31.03.201 1 are not of Smt. Anita Chadda. There is no confirmation of the creditor, further there is no proof of creditworthiness of Smt. Anita Chadda. No details whatsoever have been brought on record, in support of creditworthiness of Smt. Anita Chadda. Further, it is observed that as per Profit & Loss ending on 31.03.201 1 an amount of Rs. 4,42,244.73 was debited as interest. Further assessee has filed copy of Bank Statement with State Bank of Patiala and it is stated that sum of Rs.4,48,767.00 paid vide cheque No.192420 on 16.11.2010 represents interest ITA No. 577/Asr/2019 Darpan Jain v. ITO 4 payment to Smt. Anita Chadda. It was stated by Ld. Counsel that TDS provisions were not applicable. However, it is observed that interest figures in the P&L A/c and in the bank account do not match. Further, it is observed that as Darpan Jain Capital A/c in the books of Pushkar Udhyog the entry of receipt of Rs. 52,00,000/- is as under:- Debit Credit 05.04.2010 By CHQ No. 431609 SBOP 52,00,000/- However, the entry of receipt of Rs.52,00,000/- in the bank A/c of Sh. Darpan Jain State Bank of Patiala is as under: 05.04.2010 R:HDFCH 1009545668 52,00,000/- TFR From 099826509140 6. Ground of appeal no.4 is further addition of Rs.3,60,000/- by way of disallowance u/s 36( 1)(iii) has been wrongly made, when it was neither the subject matter of reasons recorded, nor the Id. 1TO ever confronted the assessee with his intention to make such a disallowance. Hence, it is arbitrary and against natural justice. 6.1 I have carefully considered the facts of the case and submissions of the appellant. As per assessment order, the assessee had claimed deduction of Rs 4,42,244.73 on account of interest to Bank, The assessee had made non- commercial advance of Rs 45,00.000.00 to his wife for purchase of immovable property, The utilization of borrowed funds for non business purposes attracts disallowance of interest claimed as expenditure. Hence Addition of Rs.360000.00 (Rs 45 Lakhs x 10% x 8/12) towards disallowance of interest were made. During the appeal proceedings, Ld. Counsel has argued that assessee beside the bank loans, had ample interest free funds in the books of his business. Besides the assessee has received Rs.52 lacs from Smt. Anita Chadda on 05.04.2010 at the very' start of the year. Admittedly when no interest was charged to P&L A/c on this amount, it was an interest free fund available with assessee s business. Besides, the assessee has opening interest free capital of Rs.42,43.106. In view of interest free funds available with the assessee, the disallowance of interest was not called for. ITA No. 577/Asr/2019 Darpan Jain v. ITO 5 It is observed that, the amount of Rs.45 lakh advanced to wife of the assessee was for non-business purposes, it was for purchase of land. As far as availability of opening balance of capital account is concerned, the same gets absorbed in the investment in fixed assets. The assessee has not filed fund flow to show how interest free funds were advanced for non-business use. The assessee has incurred interest expenditure on loans raised for business purposes. In view of the above, the disallowance of interest made by the Assessing Officer is upheld. This ground of appeal is dismissed.” 5. The ld. counsel for the assessee submitted that the disputed amount of Rs.52 lacs were explained to be a loan raised on interest from one Smt. Anita Chadha, resident of 689-R, Model Town, Jalandhar, by way of a cheque, credited in the assessee’s Saving bank account no. 38787 with SBOP on 05.04.2010 (APB pg. nos. 19 to 22). The counsel further stated that since it was an interest bearing loan a copy of debit note dated 31.03.2011 for Rs. 3,25,000/- for the period from 01.11.2010 to 31.03.2011, raised by Smt. Anita Chadha bearing her name, address, phone nos. her PAN and also the signatures of her husband, was filed before the ld. AO (APB pg. no. 23) in the form of confirmation of the loan creditor. The ld. AR explained before the Tribunal that owing to some court cases going against the said creditor, the assessee’s relation with her had gone soar and therefore, it was not possible to produce her before the AO. Therefore, it was requested to the AO that if deemed necessary, she may be summoned ITA No. 577/Asr/2019 Darpan Jain v. ITO 6 u/s 131/133(6) at assessee’s cost. However, the AO rather than appreciating assessee’s genuine constrains, asked the assessee to produce her to confirm the impugned loan. The counsel has further submitted that the assessee has again explained his inability to produce the said lady creditor for the reason that assessee has unhealthy relation as cited above. In support, the assessee has sent a registered letter in his own signature dated 17.12.2018 to Smt. Anita Chadha with a copy thereof sent by whatsapp to the Assessing Officer requesting therein her to appear before the AO in order to confirm the disputed loan transaction. The ld. AR argued that the assessee has produced most relevant cogent material before the AO but he has failed to make any efforts to carry out verification and decided to tax the above said amount u/s 68 alleging that assessee failed to discharge the initial onus by not producing the said lady for recording her statement. The counsel has contended that the assessee has paid interest @ 15% per annum on the said amount of loan on three occasions and the principal amount was paid back by debiting the same to the loan payer credits SB account with SBOP by the following details: (1) Rs. 25 lacs by cheque no. 820546 debited on 15.12.2011 (2) Rs. 27 lacs by cheque no. 620547 debited on 26.11.2011 ITA No. 577/Asr/2019 Darpan Jain v. ITO 7 In support, the ld. AR placed reliance on the Hon’ble Punjab & Haryana High Court in the case of Pr. CIT v. Talbros Engineering Ltd. [2016] 386 ITR 154 (P&H) (APB pg. nos. 31 to 33). 6. The Ld. Addl. CIT (DR) stands by the CIT(A)’s order. 7. We have heard the rival contention, perused the material on record and the impugned order. Admittedly, the assessee has received loan of Rs. 52 lacs from Smt. Anita Chadha during the year under consideration. The AO has made an addition of the said amount of the loan of Rs.52 lacs as unexplained cash credit u/s 68 of the Act. By observing that the assessee failed to produce the creditor Smt. Anita Chadha for recording her statement and the copy of the debit note of interest sent by somebody other than Smt. Anita Chadha cannot be taken as confirmation of the advance loan and creditworthiness of Smt. Anita Chadha. The ld. Commissioners of Income Tax has concurred with the finding of the AO by observing that the assessee has not produced any proof or record of the court cases due to which the assessee could not fled the confirmation of the loan creditor. The ld. CIT(A) has brushed aside the submissions of the assessee relating to the details filed in the form of her name, address, phone numbers, her PAN and also signatures of her husband on the debit ITA No. 577/Asr/2019 Darpan Jain v. ITO 8 notes of the payment of interest on the said loan amount. In our view, the ld. AO and the CIT(A) ought to have examined Smt. Anita Chadha by issuing summons u/s 131 of the Act as per the details filed by the assessee to confirm the identity, creditworthiness and genuineness of the transactions as per the provisions of section 68 of the Act by appreciating the appellant assessee is constrained that he had gone into soar relation with the loan creditor also of ongoing court cases could be sufficient reason for the unhealthy relations and to substantiate the appellant assessee inability to produce Smt. Anita Chadha for the confirmation before the Assessing Officer. 8. In the case of Pr. CIT v. Talbros Engineering Ltd. (supra), the Hon’ble jurisdictional Punjab & Haryana High Court observed that once the assessee shows his inability to produce creditor in file evidence in support of the genuineness of the cash credit, the AO was not justified in making addition u/s 68 without summoning the creditor. The relevant part of the Judgement whereby concurring the finding of the tribunal order is reproduced below: “5. The second issue was with regard to addition of Rs. 45,94,710 made by the AO under s. 68 of the Act. The assessee received fixed deposits from nine persons for a total sum of Rs. 54.75 lacs. The AO called upon the assessee to prove the genuineness of the transaction of receipt of FDRs from these persons ITA No. 577/Asr/2019 Darpan Jain v. ITO 9 with necessary evidence. The assessee filed some details and also produced one of such depositors. In the absence of the assessee producing the other creditors, the AO held that the deposits amounting to Rs. 44 lacs received from six persons were bogus. The assessee had also claimed deduction in respect of interest paid on such FDRs to its depositors. The AO made further addition for Rs. 1,94,7100 being the amount of interest paid in respect of about six credits, making a total addition of Rs. 45.94 lacs. The CIT(A) deleted the said addition holding that the AO had not given any adverse remarks and the assessee had furnished elaborate details regarding the deposits of such depositors giving their PAN and the bank accounts showing all particulars. The Tribunal upheld the order passed by the CIT (A) observing that once the receipt of deposits amounting to Rs. 44 lacs from the six depositors was held to be genuine, the consequent disallowance of interest amounting to Rs. 1,94,71 would automatically stand deleted. The relevant findings recorded by the Tribunal on this issue read thus: "7. After considering the rival submissions and perusing the relevant material on record, it is observed that the AO made addition under s. 68 of the Act in respect of the above six depositors by treating them as bogus mainly due to the failure of the assessee in producing these depositors. At the outset, we emphasize on the duty of the assessee to comply with the requirements of the AO in the course of assessment proceedings. If the AO directs the assess. to produce the creditors, it becomes the duty of the assessee to produce the creditors so as to establish the genuineness of the credits to the satisfaction of the AO. This rule is not infallible. If the assessee, pursuant to the direction of the AO for producing certain creditors, expresses its inability to produce the persons but places on record sufficient evidence to prove the genuineness of the deposits, the addition cannot be made under s. 68 of the Act without the AO discharging his duty to summon the creditors. Presently, we are dealing with a situation in which the assessee intimated the AO to call these creditors at his own which he did not and chose to make addition without rebutting the evidence filed by the assessee. We will deal with all the six creditors one by one. 8 to 13. 14. Once the receipt of deposits amounting to Rs. 44 lac from the above six depositors is held to be genuine, the consequent disallowance of interest amounting to Rs. 1,94,710 made by the AO would automatically stand deleted. We, therefore, uphold the impugned order in deleting the addition of Rs. 45.94 lacs." ITA No. 577/Asr/2019 Darpan Jain v. ITO 10 9. Respectfully following the Hon’ble jurisdictional High Court, we accept the grievance of the assessee as genuine, in our view, that the order of the ld. CIT(A) is infirm and perverse to the facts on record and accordingly, the addition of Rs.52 lacs is hereby deleted. 10. Since, we have accepted the loan credit amounting to Rs.52 lacs received from Smt. Anita Chadha to be genuine, the consequent disallowance of interest amounting to Rs.3,60,000/- out of the interest, by the AO would automatically stand deleted. 11. It is pertinent to mention here that since, the assessee gets relief on merits of the case and hence the legal issue challenging initiation of proceedings u/s 147/148 rendered academic and hence, it is not adjudicated. 12. In the result, the appeal filed by the assesse is allowed. Order pronounced in the open court on 10.10.2022 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr/PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) ITA No. 577/Asr/2019 Darpan Jain v. ITO 11 (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order