AI Insights
The case involves an appeal by Shri Dhimant Mangaldas Shah against the order of the Commissioner of Income Tax (Appeals)-5, Ahmedabad, which pertained to the assessment year 2014-15. The primary issues in the appeal were the addition of unsecured loans and the disallowance of business expenses by the Assessing Officer (AO). The AO had made these additions and disallowances based on the non-compliance and non-cooperation of the assessee during the assessment proceedings, leading to an ex parte assessment under section 144 of the Income Tax Act, 1961. The Tribunal examined the remand report and additional evidence provided by the assessee, ultimately deciding to delete the disallowance related to salary expenses while confirming other disallowances due to insufficient evidence.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 133668 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 11 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-04-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
SMC
Next Hearing Date
27-03-2023
Assessment Year
2014-2015
Appeal Filed On
17-04-2019
Judgement Text
आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.679/Ahd/2019 Asstt.Year : 2014-15 Shri DhimantMangaldas Shah 8, Chintamani Nagar K.K. Pudurin the lane of Arun Icecream Coimbatore. Also at : A-5, Dada Saheb Flats Nr.A.G. School, Navrangpura Ahmedabad 380 009. PAN : AGVPS 0077 Q Vs ITO, Ward-5(2)(2) Ahmedabad. (Applicant) (Responent) Assesseeby : Shri Harshad Thakkar, AR Revenue by : Shri Satish Solanki, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 8 / 0 3 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 1 2 / 0 4 / 2 0 2 3 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-5, Ahmedabad (in short referred to as ld.CIT(A)) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 28.02.2019 pertaining to Asst.Year2014-15. 2. The grounds raised by the assessee are as under: ITA No.679/Ahd/2019 2 1. The Assessing Officer has erred in law as well as on facts by making additions amounting to Rs.793070/- related to unsecured loan for Rs.3,82,340/- and related to business expenditure for Rs. 4,10,730/- 2. The Assessing Officer has erred in law as well as on facts by denying the claims pertaining to expenses incurred on account Business expenses on estimated basis for an amount of Rs. 4,10,730/- 3. The Assessing Officer has erred in law as well as on facts by denying the claims pertaining to unsecured loan for an amount of Rs. 3,82,340/-. 4. Assessing officer has made additions on estimated basis without considering the nature of business and average profits earned by other assessee in the same nature of business. 3. As is evident from the above, there are two issues which have been raised by the assesseebefore us, viz.relating to the addition made of unsecured loans amounting to Rs.3,82,340/- and other relating to the disallowance of business expenditure of Rs.4,10,730/-. 4. As transpires from order of the authorities below, the assessee is an individual who had returned income for the impugned year amounting to Rs.3,99,710/- as income from profits & gains business or profession. The assessee’s case was selected for complete scrutiny but due to non-compliance and non-cooperation of the assessee before the ld.AO the assessment was framed ex parte under section 144 of the Act, and the AO made the following additions to the income of the assessee: i) On account of the genuineness of the increase in unsecured loan during the year from the preceding year to the extent of Rs.3,82,430/-remaining unproved; ii) disallowance of 20% of the business expenses claimed by the assessee of Rs.20,53,649/-, resulting in disallowance of Rs.4,10,730/-, for the reason that no support ITA No.679/Ahd/2019 3 evidences regarding bills, vouchers etc. were filed to justify such expenses. 5. The matter was carried in appeal before the ld.CIT(A) where the assessee furnished additional evidences to prove its claim against the addition made, which were sent by the ld.CIT(A) to the AO for his comments, both on the admissibility of additional evidences, and also for a report on the merits of the case by the AO after appreciating additional evidences filed by the assessee. The AO submitted his report ,after considering which the ld.CIT(A) admitted the additional evidences and thereafter adjudicated the issue before him, confirming the addition of unsecured loans to the tune of Rs.3,82,340/- and deleting thedisallowance of business expenses incurredtowards audit fees, bonus , depreciation on computer and local conveyance noting that the AO in his remand report have found them to be genuine. With respect to the expenditure on office maintenance, printing, stationery, rent, staff-welfare, salary expenditure and vehicle ,disallowance of 20% made by the AO was confirmed, whereas with respect to the travelling expenses, the ld.CIT(A) took note of the remand report of the AO, and accordingly, on the recommendation of the AO directed 50% of the total travelling expenses to be deleted and the remainingto bed confirmed. Aggrieved by the same, the assessee has come up in appeal before me. 6. Taking up first the issue of addition made on account of unsecured loan amounting to Rs.3,82,340/-,the finding of the ld.CIT(A) on the issue at para 5-6 to 5.10 of the order as under: “5.6 First ground relates to addition of Rs.3,82,340/- on account of unsecured loan difference between the previous year closing balance and current year dosing balance. ITA No.679/Ahd/2019 4 5.7. I have considered the facts of the case, assessment order, remand report from the AO and rejoinder filed by the appellant. In the remand report, the AO has submitted as under:- "/n the assessment order the AO has made the addition on account of unsecured loan of Rs. 382340/-being excess loan (new) shown in A.Y. 2014-15 as compared to A.Y. 2013-14. As the identity of the depositor, creditworthiness of the depositor and Genuiness of the transactions could not be established/proved the addition were made in the assessment order. In the return submissions made by the assessee, in the remand stage copy on confirmation, copy of the PAN card, and the bank statement of Kanchanben M Kapasi- depositor for Rs. 500000/- i$\ furnished. However, on verification it is found that the assessee has not filed the copy of ITR filed by the depositor to prove the credit worthiness of the depositor. In absence of the ITR it is believed that Smt. Kanchanben is having PAN but is not filing ITR and thus the creditworthiness is not proved. Moreover, perusal of bank statement of Smt. Kanchanben it is found that prior to transfer of fund to the assessee by RTGS by Smt.Kanchanben, on 04/03/2013 an amount of Rs.40000/- is transferred by RTGS in the account of Kanchanben from Umang Kapasi. Thus it can be concluded that Kanchanben does not have the creditworthiness/ capacity to deposit/ lend Rs.5,00,000/- to the Assessee. The unsecured loan is therefore not explained." 5.8 It is seen that the appellant could not prove the creditworthiness of Smt. Khanben either in the assessment proceeding or remand proceeding. It is noted that she was not filing any return of income and merely amount received through cheque cannot be prove the genuineness and creditworthiness of the transaction. 5.9 The issue is directly covered by the recent decision of Hon'ble Ahmedabad ITAT, Hon'ble Gujarat High Court and Hon'ble Supreme Court in the case of Pavankumar M. Sanghavi v/s ITO. The Hon'ble ITAT ( 81 taxmann.com 308 ) has held that when Assessee received unsecured loan but could not produce lenders for verification and these lenders were found to be shell companies, said loan transactions could not be said to be genuine merely because assessee filed loan confirmations copies of ledger accounts and other supporting evidences. The relevant observation of the ITAT is also reproduced hereinbelow: "8 As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin ITA No.679/Ahd/2019 5 transactions-to give it color of a normal business entity, used as a vehicle for various financial maneuvers. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial maneuverings to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial maneuverings for the benefit of its clients, or, with that predominant underlying objective, to give the color of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities." The Hon'ble Gujarat High court has confirmed the decision of the ITAT and held as under:- "3. Perusal of the orders on record and in particular, the above quoted portion of the order of the Tribunal would make it clear that the entire issue is based on appreciation of evidence on record and thus factual in nature. The Tribunal has given elaborate reasons to come to the conclusion that the entire transaction was not genuine. In absence of any perversity, we do not see any reason to interfere. 4. Learned counsel for the assesses however vehemently contended that the assessee had received loans through cheques from lenders who had confirmed the same. Their accounts are audited and filed before the Revenue authorities. Thus, the genuineness of the transactions, the capacity of the lender and the factum of lending all have been established. Addition under section 68 of the Act there could not have been made. However, as noted, the Tribunal has minutely examined the position of the lenders, the circumstances under which, the amounts were allegedly loaned to come to the conclusion that the "transactions were not genuine." The Hon’ble apex court on 01.5.2018 also dismissed the SLP filed against the order of the Hon’ble Gujarat High Court. 5.10 Considering the above facts of the case, the addition made by the AO is confirmed.” 7. I have gone through the order of the ld.CIT(A) and I find that after taking note of remand report of the AO, the ld.CIT(A) held that since the assessee could not prove credit-worthiness of the unsecured loan creditor i.e. Smt.Kanchanben, therefore, the ITA No.679/Ahd/2019 6 genuineness of the unsecured loan remained unproved and accordingly the addition of the same was confirmed by the ld.CIT(A). But on going through the remand report of the AO, which is reproduced at para 5.7 of the ld.CIT(A) order as above, I find that the facts are altogether contrary. The AO in his remand report has categorically noted that the bank statement of unsecured loan creditor, Smt.Kanchanben revealed that prior to transfer of funds to the assessee during the impugned year an amount of Rs.4.00 lakhs was transferred by RTGS in her account from Umang Kapasi. The unsecured loan whose genuineness is in question before us is of Rs.3.82 lacs. This fact itself demonstrates that the source of funds with Smt.Kanchanben was within the knowledge of the AO as having come from one Umang Kapasi. In the light of the same the credit- worthiness of Smt.Kanchanben was proved, as having advanced the loan to the assessee from funds received from Umang Kapasi. How, in the light of this fact, the AO inhis remand report doubted the credit-worthiness of the assessee, I fail to understand, and so also the ld.CIT(A) who I find merely reiterated the findingof the AO in his remand report. 8. In the light of the above facts, I do not agree with the ld.CIT(A) that the credit-worthiness of Smt.Kanchanben, unsecured loan depositor, remained to be proved. On the contrary, I hold that the credit-worthiness of Smt.Kanchanben was established from the bank statement itself which reflected funds received by her from Umang Kapasi prior to giving loan, and which fact was noted by the AO also. The genuineness of the unsecured loans received by the assessee from Smt.Kanchanben therefore, I hold, cannot be doubted on the ground of her credit-worthiness .The order of the ld.CIT(A), I hold , is accordingly set aside. The ground raised by the assessee in this regard are therefore allowed. ITA No.679/Ahd/2019 7 9. On the issue of disallowance of business expenses, the assessee has furnished before me a table bringing out the total expenditure claimed by the assessee in his P&L Account, the amount disallowed by the AO and disallowance confirmed by the ld.CIT(A). The same is reproduced hereinbelow: “Disallowance of Business Expenditure 20% Name Expenses as per P & L Account(Amt in Rs.) 20% of Exp. Disallowed Disallowance confirmed by Appellate Authority Remarks Audit Fees 25,000/- 5,000/- — Bonus Exp. 74,830/- 14,966/- — Staff Salary 16,21,500/- 3,24,300/- 1,91,500/- Depreciation Exp 18,850/- 3,770/- Local Conveyance 20,525/- 4,105/- Office Maintenance 42,200/- 8,440/- 8,440/- Printing & Stationary 29,652/- 5,930/- 5,930/- Rent 36,000/- 7,200/- 7,200/- Staff Welfare Exp 25,335/- 5,067/- 5,067/- Telephone Exp 46,756/- 9,351/- Travelling Exp 86,167/- 17,233/- 43,053/:(50%) Note:l Vehicle Maintenance 26,834/- 5,367/- 26,834/- (100%) Note: 2 ITA No.679/Ahd/2019 8 Total 20,53,649/- 4,10,730/- 2,88,024/- 10. As is evident from the above, the disallowance confirmed by the ld.CIT(A) is Rs.2,88,024/- and not Rs.4,10,730/- as mentioned by the assessee in the grounds of appeal raisedbefore. Therefore, the issue to be adjudicated by me is in relation to confirmation of disallowance of business expenditure to the tune of Rs.2,88,024/-. 11. As noticed from the table reproduced above, the majority of disallowance relates to staff salary amounting to Rs.1,91,500/-, out of total expenses disallowed of Rs.2,88,024/-. The ld.CIT(A) has confirmed the disallowance holding that the assessee did not furnish any details of the employees to whom salary was paid and it was paid in cash, and therefore, genuineness was not proved. Para 6.5 of the CIT(A)’s order holds so, as under: “6.5. With respect to salary expenses of Rs. 1,91,500/- and vehicle maintenance of Rs.26,836/, the appellant could not filed the list of employees, name address, nature of duty, therefore the AO recommended that the disallowance should be sustained. The appellant merely submitted that the salary paid is genuine expenditure and it was paid in cash which is in the limit of rule-6DD and same should be allowed. However the contention of the appellant is vague and general and no evidence is produced to prove the genuineness therefore disallowance made by the AO is confirmed.” 12. I have noted from the order of the ld.CIT(A) that on the issue of staff salary, the assessee had filed copy of ledger account of thesalary and contended that it had paid salary of Rs.8,56,000/- out of which Rs.76,000/- paid in cash. His submission reproduced at page no.5 of the CIT(A) inthis regard as under: “Staff salary (Rs.1621500/-): We have paid salary of Rs.8,56,000/- out of which only Rs.76000/- paid by cash we are enclosing herewith ledger account for your kind verification as per Annexure B8.” ITA No.679/Ahd/2019 9 13. After considering this submission of the assessee, the AO in his remand report had noted that salary expenses to the tune of Rs.1,51,500/- had remained unexplained , being incurred in cash and the identity of the employees not being proved nor any confirmation with respect to the same being filed. The finding of the AO in his remand report dated 4.2.2019 reproduced at page no.8 fo the CIT(A)’s order at para-8.6 is as under: “8.6 Salary expenses of Rs. 151500/-: Assessee was asked to furnish the list of employees with name, PAN, address, nature of duty, experience, salary drawn and confirmation of receipt of salary. The assessee has not furnished the details called for. Assessee has furnished the ledger account of the salary account but has not filed the details of nature of duty, experiences of the employees justification of salary drawn and confirmation of the receipt of salary. The salary is paid in cash. No details is filed such as the list of employees with the confirmation of the employees as the payments are made in cash. Even the identity of the employee is also not proved. In view of the above, it can be said that the assessee has claimed expenses without any supporting evidences. Assessee has failed to substantiate the expenses claimed both at the assessment stage as well as at the remand stage. Therefore the addition made on this account needs to be sustained.” 14. Thus, out of total salary expenses of Rs.16,21,500/-, the AO found salary expenses to the tune of Rs.1,51,500/ still remained to be justified by the assessee. In response to this remand report, the assessee had filed a rejoinder submitting that the salary expenses incurred in cash was for salary paid to sweeper and clerks and had submitted details of the cash payment and cheque payments made to various employees. The same is reproduced at page no.10 of the CIT(A) at para-6 as under: ITA No.679/Ahd/2019 10 15. Despite the assessee’s explanation with regard to the cash payment made on account of salary to its employees, as being paid to clerks and peons, the ld.CIT(A) took no cognizance of the same, and merely relied on the remand report of the AO confirming the disallowance of salary expenses, that too, to the tune of Rs.1,91,500/-, when the AO had recommended disallowance to the tune of Rs.1,51,500/- after examining all the details submitted by the assessee. Considering the fact that, firstly disallowance of salary expenses ought to have been restricted by the ld.CIT(A) to the extent recommended by the AO of Rs.1,51,500/- and not Rs.1,91,500/- as done by him and noting that even otherwise, the assessee had justified incurrence of expenses in cash and even identity and names of the employees, being clerk and sweeper ,to whom he had paid the salary was provided, the ld.CIT(A), I hold, is not justified in confirming the disallowance of salary expenses ,ignoring the contentions of the assessee and simply following the reasoning given by the AO in his remand report. The assessee having furnished reasonable explanation for incurring of the expenses in cash, the same, I hold, is allowable. Accordingly, I direct deletion of the disallowance of salary confirmed by the ld.CIT(A) to the tune of Rs.1,91,500/-. ITA No.679/Ahd/2019 11 16. With reference to the disallowance of 20% of the office maintenance, printing and stationery, rent and staff-welfare expenses confirmed by the ld.CIT(A), his finding in this regard at para 6.4 are as under: “6.4 In the remand report, the AO further stated that with respect to office maintenance expenses of Rs.42,200/-, printing and stationery of Rs.29,652/-, rent of Rs.36,000/- and staff welfare expenses of Rs.25,335/- the appellant could not file any evidence either in the assessment proceedings or in the remand proceedings and recommended that the disallowance of 20% should be upheld. The appellant merely submitted that these expenses should be allowed being genuine. However, in the absence of any supporting evidence, the above expenses cannot be treated genuine therefore disallowance made by the AO @20% is confirmed on these expenses.” The ld.counsel for the assessee before me was unable to controvert the finding of the ld.CIT(A) that no supporting evidences were filed by the assessee with regard to the above expenses. In view of the same, the order of the ld.CIT(A) confirming disallowances office maintenance, printing and stationery, rent and staff-welfare expenses is upheld. 17. With respect to disallowance of travelling and vehicle maintenance expenses confirmed by the ld.CIT(A), his finding at para 6.6 of the order are as under: “6.6. With respect to travelling expenses of Rs.86,166/-, in the remand report submitted that the assessee filed the details but could not prove the business purposes, therefore submitted that the 50% should be treated for business purpose. The appellant merely submitted that the details of travelling expanses has been filed in the remand proceeding therefore the same should be allowed. Considering the facts discussed above and since no justification was given for business purpose therefore as recommended by the AO, 50% out of total travelling expanses is deleted and remaining Rs.43,083/- is confirmed as disallowance out of traveling expanses.” ITA No.679/Ahd/2019 12 18. Before me, the ld.counsel for the assessee was unable to controvert finding of the ld.CIT(A) that the assessee could not establish business purpose for the travelling undertaken by the assessee. In view of the same, the disallowance of travelling expenses to the tune of Rs.86,166/- confirmed by the ld.CIT(A) is upheld. The ground raised by the assessee with respect to the disallowance of business expenses is accordingly partly allowed in the above terms. 19. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 12 th April, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 12/4/2023 vk*
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