Shri Krishnabhagwan R. Sharma, RAJKOT-GUJARAT V. The Asstt. Commr. Income Tax, Gandhidham Circle, GANDHIDHAM

ITA 73/RJT/2015

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5358 (ITAT-RAJKOT)
• Duration Of Justice: 7 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Gift; Additional evidence; Onus to prove; TDS
• Section: 68; 145; 143(3); 40(a)(ia); 133(6); 143(2); 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND MS. MADHUMITA ROY, JUDICIAL MEMBER ITA No. 73/Rjt/2015 Assessment Year : 2009-10 Shri Krishnabhagwan R. Sharma, Prop. of M/s. Kandla Cargo Carriers, “Shreeji House”, Plot No. 269, Sector No.1A, Gandhidham PAN : AFPPS 8587 Q Vs Assistant Commissioner of Income-tax, Gandhidham Circle, Gandhidham-Kutch ITA No. 82/Rjt/2015 Assessment Year : 2009-10 Deputy Commissioner of Income-tax, Gandhidham Circle, Gandhidham-Kutch Vs Shri Krishnabhagwan R. Sharma, Prop. of M/s. Kandla Cargo Carriers, Gandhidham PAN : AFPPS 8587 Q / (Appellant) / (Respondent) Assessee by : Shri Mehul Ranpura, AR Revenue by : Shri Sanjeev Jain, CID-DR /Date of Hearing : 08/06/2022 /Date of Pr onouncement: 20/07/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : These two appeals, one filed by the assessee being ITA No. 73/Rjt/2015 and other filed by the Revenue being ITA No. 82/Rjt/2015, are cross appeals which are directed against the order of learned Commissioner of Income-tax (Appeals), Jamnagar [“CIT(A)” in short] dated 23.12.2014, for the Assessment Year 2009-10. 2. The common issue involved in assessee’s appeal and Ground Nos. 1 to 3 of the Revenue’s appeal relates to the disallowance of Rs.1,22,57,102/- ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 2 made by the Assessing Officer on account of alleged bogus freight expenses which is sustained by the learned CIT(A) to the extent of Rs.54,53,224/-. 3. The assessee, in the present case, is an individual who is engaged in the business of transportation in the name and style of his proprietary concern M/s. Kandla Cargo Carriers. The return of income for the year under consideration was originally filed by the assessee declaring a total income at Rs.46,85,810/- which was subsequently revised on 13.11.2009 declaring a total income of Rs.87,22,236/-. The said return was selected for scrutiny under CASS and a notice under Section 143(2) of the Income-tax Act, 1961 [“the Act” in short] was issued by the Assessing Officer to the assessee on 18.08.2010. In the balance-sheet filed along with the return of income, the following amounts were shown by the assessee as payable towards transportation charges:- Sr. No. Name Amount 1. Best Haryana Public Roadways Rs.21,54,554/- 2. Baba Dadabhola Road Carriers Rs.13,45,000/- 3. Haryana Kotputlli Roadlines Rs.16,05,796/- 4. Baba Naryandas Transportation Co. Rs.11,45,200/- 5. Agra Ahmedabad Roadlines Rs.14,25,451/- 6. Baba Haridas Transport Co. Rs.17,58,221/- 7. Haryana Public Roadways Rs.15,65,880/- 8. Chaudhary Freight Carrier Rs.12,57,000/- Total Rs.1,22,57,102/- 3.1 Since there was no proof submitted by the assessee regarding any tax deducted at source from the above transport charges and the liability for the said charges was outstanding unusually for a long time, the assessee was called upon by the Assessing Officer to support and substantiate the same by filing confirmation letters of the concerned parties. Although the assessee filed such confirmations, the Assessing Officer on verification done ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 3 through the Inspector found that some parties were not available at the address given while some denied categorically of having done any transaction with the assessee. When this outcome of the inquiry conducted through Assessing Officer was confronted by the Assessing Officer to the assessee, the latter could not offer any satisfactory explanation. He also failed to produce the original bills for the relevant transportation charges as well as the proof of payments claimed to be made to the said parties against outstanding liability in the subsequent year. The Assessing Officer, therefore, treated the claim of the assessee for transportation charges of Rs.1,22,57,102/- as bogus and added the said amount to the total income of the assessee in the assessment completed under Section 143(3) of the Act vide an order dated 22.12.2011. 3.2 The disallowance made by the Assessing Officer on account of transportation charges of Rs.1,22,57,102/- inter alia was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) upheld the action of the Assessing Officer in treating the liability in question on account of transport charges as unverifiable for the following reasons given in paragraph No.7.3.1 of his impugned order:- “7.3.1 I have duly considered the above. It is needless to mention that primary onus to prove the expenses/liabilities always lies on the assessee. In the present case, highly unusual incident of 8 outstanding creditors for freight expenses was noticed by the A.O. In the line of transportation, this was quite unusual as normally the payments are made either immediately or soon after the completion of work. In view of this, the A.O. deputed his inspector for field inquiry. In the said inquiry, the transactions with the appellant were not confirmed. Under the circumstances, there was heavy onus on the appellant to prove the genuineness of the expenses and the liabilities shown on that count. However, the appellant could only show ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 4 several possibilities for this happening without being cogent in respect of any of the 8 transporters. It is very much unbelievable and, in the absence of any concrete evidence, quite unacceptable that the appellant had genuine liabilities of Rs.1,22,57,102/- in respect of 8 transporters on account of freight expenses and that the appellant paid them in cash in subsequent year where each individual cash payment was below Rs. 20,000/-. This set of facts is highly improbable on the test of human probabilities and surrounding circumstances. More so, when the payees have also not confirmed this. Under the circumstances, I am of the view that the appellant has failed to discharge the onus in respect of impugned liabilities and corresponding expenses and therefore the A.O. was justified in not accepting the same.” 3.3 The learned CIT(A), however, did not accept the methodology adopted by the Assessing Officer while making addition of entire amount to the total income of the assessee on this issue and restricted the addition of Rs. 1,22,57,102/- made by the Assessing Officer to Rs.54,53,224/- for the following reasons given in paragraph No.7.3.2 of his impugned order:- “7.3.2 As regards the quantum of addition, I am not in agreement with methodology adopted by the A.O. The A.O. has simply added the outstanding liabilities standing in the name of impugned 8 transporters without keeping in mind that the said liabilities were on account of freight expenses. This methodology is incorrect as trading liability is always different from a cash credit falling under section 68. In case of cash credit directly featuring in balance sheet, the addition of entire amount of cash credit is made as such cash credit are not directly linked with the operational income shown in the Profit & Loss account. Unlike this, the trading liability arises from the expenses debited in the Profit & Loss account and therefore they are closely linked with the operational income of the assessee. In case of trading liabilities, focus should be on determination of true income as such liabilities are inextricably linked with the operational income of an assessee. If trading liability is found to be unverifiable, it means that the corresponding trading expense (purchase, direct exp. or indirect exp.) were not verifiable. In such a case, probe has to be done in the expenses and addition/disallowance should be based on the outcome of such probe. When the expenses are unverifiable, the addition of outstanding liability representing such expenses cannot be a logical addition because it suggests small addition in case of lower outstanding liability and sizeable addition in case of higher amount of outstanding liability. In none of the two situations, it concentrates on taxing real income that a businessman would have earned. ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 5 The addition of outstanding liability indicates that the amount shown to have been paid by the appellant to these transporters during the year stood accepted even though the transporters disowned the transactions with the appellant. This again is illogical. Therefore, addition of outstanding liabilities of freight expenses seems to be improper in my view on the basis of consideration of sound accounting theories for finding true income of an assessee which are consistently applied for years in the matter of taxation. The disallowance should have been ideally worked out on the basis of expenses rather than liabilities. However, at the same time, it is to be borne in mind that freight income has been accepted and it cannot be denied that for earning freight income, freight expenses have to be incurred. Hence, there cannot be total disallowance of expenses. In my view, section 145 of the Act has been enacted especially to deal with this kind of complex situation wherein the income of an assessee is to be estimated when the same can not be deducted from books of accounts regularly maintained. The facts and findings of the present case clearly suggest that this is a fit case for rejection of books and estimation of income. I, therefore, hold that the books of accounts of the appellant are reliable and it is not possible to determine correct income therefrom. I therefore proceed to determine the income of the appellant. The appellant has reported N.P. Ratio of 1.61% which cannot be accepted in the given situation of large unverifiable freight expenses. I am of the view that N.P. Ratio of 4% would be justified in the appellant's case looking the nature and scale of business. The appellant has declared gross receipts of Rs.22,82,64,234/-. The net profit @ 4% thereon comes to Rs.91,30,559/-. As against this, the appellant has shown net profit of Rs.36,77,345/-. Resultantly, addition of Rs. 54,53,224/- is required to be made on the basis of rejection of books. The A.O. is directed to replace the addition of Rs.1,22,57,102/- by Rs. 54,53,224/-. This ground of appeal is partly allowed.” 3.4 Still aggrieved by the order of the learned CIT(A) the assessee has preferred this appeal before the Tribunal. 4. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the total liability of Rs.1,22,57,102/- shown by the assessee as payable to the concerned 8 parties on account of transportation charges was found to be not genuine by the Assessing Officer as well as by the learned CIT(A) on the basis of specific findings recorded by them in their respective orders which are already ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 6 discussed in the preceding paragraphs of this order. On the basis of the said findings, it was held by them that the transport charges of Rs.1,22,57,102/- claimed by the assessee were not verifiable. At the time of hearing before us, the learned Counsel for the assessee has not been able to bring anything on record to rebut or controvert these specific findings recorded by the authorities below. He, however, has disputed the quantification of addition as made by the learned CIT(A) at Rs.54,53,224/- by rejecting the books of account of the assessee and by estimating the income of the assessee from the transport business of the assessee by applying a net profit of 4%. As rightly contended by him, the learned CIT(A) ought to have taken into consideration the previous history of the assessee’s case while estimating the income of the assessee by applying a net profit rate of 4%. In this regard, he has furnished the following data relating to the assessee’s case for the immediately preceding year as well as for the immediately two succeeding years:- AY Turnover (Rs.) Gross Profit(Rs.) GP (%) Net Profit (Rs.) NP (%) Freight Exp (Rs.) Turnover/ Freight Exp. Ratio 2008-09 7,75,61,816 1,79,03,458 23.08 11,96,891 1.54 3,07,19,873 36.61 2009-10 22,82,64,234 2,69,34,391 11.80 38,31,633 1.68 15,22,78,649 66.71 2010-11 30,66,10,317 4,67,68,221 15.26 49,14,806 1.60 20,16,30,008 65.76 2011-12 42,81,77,849 7,36,16,828 17.19 71,85,094 1.68 21,51,47,519 50.25 4.1 Although the learned Counsel for the assessee has submitted that the net profit rate of 1.68% declared by the assessee for the year under consideration was well comparable with the net profit rate of 1.54%, 1.60% and 1.68% declared for AYs 2008-09, 2010-11 and 2011-12 respectively, we find that the GP rate of 11.80% declared by the assessee for the year under consideration was lower than the GP rate declared by the assessee for AY 2008-09, 2010-11 and 2011-12. No doubt, the turnover of the assessee in AY ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 7 2008-09 being substantially lower than that of the year under consideration, we are of the view that it would not be fair and proper to take the figures for AY 2008-09 for comparison. Moreover, the issue before us is relating to the claim of the assessee on account of freight/transportation charges and it would, therefore, be fair and proper to consider and compare the freight expenses claimed by the assessee for the immediately succeeding two years i.e. AYs 2010-11 and 2011-12, wherein the turnover of the assessee was comparable to that of the year under consideration. In this regard, it is noted that the freight expenses claimed by the assessee for both these years were about 56% of the total turnover as against 66% of the total turnover as claimed by the assessee for the year under consideration. Based on this comparative analysis, the claim of the assessee for freight/transportation charges for the year under consideration thus was higher by 10% of the turnover; and, in our opinion, it would be fair and reasonable to disallow the claim of the assessee for freight/transportation expenses to the extent of Rs.23,00,000/- being about 10% of the total turnover of the assessee for the year under consideration. We accordingly modify the impugned order of the learned CIT(A) and restrict the disallowance made by him on account of freight/transportation charges to the extent of Rs.23,00,000/-. 5. In the result, the appeal of the assessee is partly allowed; whereas Ground Nos. 1 to 3 of the Revenue’s appeal are dismissed. 6. In ground No.4, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs.37,85,407/- made by the Assessing Officer on account of the alleged bogus liabilities in respect of certain creditors. ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 8 6.1 In the balance-sheet filed along with the return of income, the following liabilities were shown:- 1. Eagle Tyre Retreading - Rs. 9,92,766/- 2. Krishna Tyre - Rs. 8,80,200/- 3. Shree Jay Bajarang Trading Co. - Rs. 6,76,890/- 4. Antraya Rajay Kodputli Transport Co. - Rs.12,35,551/- Total - Rs.37,85,407/- In order to verify the genuineness of the above liabilities, the assessee was called upon by the Assessing Officer to file the confirmation of the above four creditors. Since the Assessing Officer found certain anomalies in the confirmation letters filed by the assessee, he issued notices under Section 133(6) of the Act to all the four creditors at the given address. The said notices, however, were returned back “unserved” and when the assessee was called upon by the Assessing Officer to produce the original bills raised by the said parties as well as proof of payment made to them, the assessee failed to comply with the same. The Assessing Officer, therefore, treated the liabilities shown to be payable by the assessee to the concerned four creditors aggregating to Rs.37,85,407/- as bogus and addition to that extent was made by him to the total income of the assessee. 6.2 The addition of Rs.37,85,407/- made by the Assessing Officer on account of the alleged bogus creditors was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) deleted the said addition for the following reasons given in paragraph No.7.4.1 of his impugned order:- “7.4.1 I have duly considered the above. The main ground for addition by the A.O. is return of notices u/s. 133(6). In the Mumbai ITAT decision in case of national Tiles & Industries Pvt. Ltd. (ITA No. 1074 of 2010) relied ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 9 upon by the appellant, view has been taken that merely because notices u/s. 133(6) have returned unserved, the creditors cannot be treated as non existing. Further, the appellant has placed on record evidences showing payment to the creditors in the subsequent years through banking channels. The A.O. has not been able to controvert this. Under the circumstances, the contention of creditors being bogus does not survive. I am therefore of the view that the impugned creditors cannot be treated as bogus merely because notices u/s. 133(6) could not be served upon them. There may be several permutations and combinations for non service of notice but once the appellant discharged the onus by showing that payment was made through banking channels, addition on ground of bogus liabilities cannot be made without disproving the evidences of the appellant. The A.O. has not been able to disprove the evidences of the appellant and therefore the addition cannot sustain. In any case, the impugned creditors also represented trading liabilities on account of tyre expenses and since I have already rejected the books and estimated the net profit in foregoing para 5.3.2, no separate addition in respect of any trading expenses is required. I therefore direct the A.O. to delete the addition of Rs.37,85,407/-. This ground of appeal is accordingly allowed.” 6.3. We have heard the arguments of both the sides and also perused the relevant material available on record. The learned DR has contended that the genuineness of the liability in question payable to the concerned four creditors was not established by the assessee and even the bills raised by the said four parties were not produced before the Assessing Officer for verification. He has contended that the learned CIT(A), however, ignored this case made out by the Assessing Officer in the assessment order and deleted the addition by holding that the same was covered in the amount of profit of the assessee from the transportation business as estimated by him. However, as rightly pointed out by the learned Counsel for the assessee from paragraph no. 7.4.1 of the impugned order of the learned CIT(A), the entire liability appearing in the name of the concerned four creditors was fully settled by the assessee in the subsequent year by making payments through proper banking channel and keeping in view this undisputed position, it was held by the learned CIT(A) that the genuineness of the said ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 10 creditors could not be doubted merely because notices issued by the Assessing Officer to them under Section 133(6) of the Act could not be served. It is thus clear that this issue was decided by the learned CIT(A) in favour of the assessee on merit accepting the genuineness of the concerned four creditors; and, as an alternative, it was also held by him that this addition even otherwise was covered by the trading addition made by him by estimating the income of the assessee by applying net profit rate. Keeping in view all the facts of the case, we find no justifiable reason to interfere with the order of the learned CIT(A) on this issue and upholding the same, we dismiss Ground No.4 of the Revenue’s appeal. 7. In Ground No.5, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs.3,01,49,768/- made by the Assessing Officer on account of unexplained gift. 7.1 In the capital account of the assessee with his proprietary concern M/s. Kandla Cargo Carriers, a sum of Rs.3,00,69,570/- was credited and the same was described as gift received by the assessee from his son Shri Mohit Sharma. On verification, the Assessing Officer found that there was no corresponding debit entry appearing in the account of Shri Mohit Sharma. In this regard, it was explained by the assessee that two cheques amounting to Rs.2,00,00,000/- and Rs.1,00,69,750/- were received by the assessee from his son during the year under consideration towards gift; and, although the same were accepted by the assessee and entry for the receipt for the same was made, they were not deposited in the bank account. It was also submitted that two cheques for the similar amounts were issued by the assessee to the proprietary concern of his son Shri Mohit Sharma namely M/s. Shreeji Overseas India Pvt. Ltd. and although the entries for the said cheques were duly made in the books of account, the same were also not ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 11 deposited in the bank account by the said proprietary concern. It was submitted that all these four cheques were finally deposited in the bank and cleared in the next financial year relevant to Assessment Year 2010-11 and, therefore, there was no question of treating the same as representing unexplained income of the assessee for the year under consideration. The Assessing Officer did not accept this explanation of the assessee. He found that the relevant cheques claimed to be not deposited by the assessee in the bank were not appearing “cheques on hand” in his books of account. He, therefore, treated the amount of Rs.3,01,49,768/- claimed to be received by the assessee as gift from his son as unexplained and made addition to that extent to the total income of the assessee. 7.2 The addition of Rs.3,01,49,768/- made by the Assessing Officer on account of unexplained gift claimed to be received from his son was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) deleted the said addition for the following reasons given in paragraph No.7.5.1 of his impugned order:- 7.5.1 I have duly considered the above, I agree with the appellant that the A.O. has failed to understand effect of accounting entries passed by the appellant. On 31-03-2009 (last day of the accounting year), the appellant received impugned gift from his son by way of 2 cheques. These 2 cheques were kept on hand and they were not deposited in the bank accounts as on 31-03-2009. Simultaneously on 31-03-2009, the appellant issued 2 cheques of the same amount to M/s. Shreeji Overseas (India) Pvt. Ltd, (the company in which the appellant was a director) and these 2 cheques were also not cleared as on 31-03-2009." All these cheques (cheques received as well as cheques issued) got cleared on 26-09-2009 in the subsequent year. Thus, this was a case where accounting entries were passed in current financial year based on cheques received and cheques issued whereas the actual banking transactions took place in subsequent year. The A.O. contended that in the ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 12 appellant's balance sheet as on 31-03-2009, the cash and bank balance was Rs. 2,27,12,142/- and therefore cheques on hand of more than 3 crores was not possible. However, the A.O. failed to understand that simultaneously with the receipts, the appellant had issued the cheques of the same amount in favour of the company in which he was a director and passed the accounting entries. Thus, the cheques received were set off by the cheques issued and therefore they were not forming part of the cash and bank balance of the appellant as on 31-03-2009. The another contention of the A.O. that the cash and bank balance as on 31-03-2009 in the company's balance sheet also did not reflect the impugned amount was also erroneous as the entry for the said amount was passed in the Current account of the company which, had credit balance and therefore the same was reflected on the liability side of the company's balance sheet and thus it was not forming part of cash and bank balance of the company. The above events are visible from the accounting entries passed by the appellant in the ledger accounts and bank statements wherein the cheques were cleared on 26-09-2009. It is observed that the A.O. treated the gift as undisclosed Income only because the accounting entries were not found to be matching by him. It is expected that the A.O. should have necessary accounting knowledge to understand the effect of accounting entries before such huge additions are made to the returned income. The gift was between the persons of blood relation (father and son) and therefore prima facie, there was no reason to disbelieve its genuineness. The son of the appellant is also an income j:ax assessee assessed with the A.O, which fact has been mentioned by the A.O. in the last para of the remand report. Under the circumstances, the identity and capacity of the donor can also not be questioned. Such huge addition on the basis of misunderstanding of accounting entries appears to be unfortunate. However, before me, the accounting entries and their effect on the financial statements are duly explained with reference to the bank statements and the same is clear and visible. I therefore delete the addition of Rs.3,01,49,768/- made by the A.O. This ground of appeal is allowed.” 7.3 We have heard the arguments of both the sides and also perused the relevant material available on record. The learned DR has mainly relied on the order of the Assessing Officer on this issue while the learned AR has relied on the impugned order of the leaned CIT(A) submitting that the same being a well discussed and well reasoned order on the issue under consideration deserves to be upheld. As pointed out by him from the relevant portion of the impugned order of the learned CIT(A), the ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 13 accounting effects of the relevant transactions were not properly understood and appreciated by the Assessing Officer inspite of the fact that the same were duly explained by the assessee. The learned CIT(A), on the other hand, understood and appreciated the accounting entries made by the assessee for the relevant transactions in his books of account and after satisfying himself about the correctness of the same, he found that the objections raised by the Assessing Officer to treat the amount in question as unexplained were frivolous and unsustainable. The learned CIT(A) also found that all the corresponding cheques were duly cleared in the immediately succeeding year and since the identity and capacity of the donor as well as genuineness of the relevant transactions involving gift given by son to his father was duly found to be established, the learned CIT(A) deleted the addition made by the Assessing Officer on this issue. At the time of hearing before us, the learned DR has not been able to bring anything on record to rebut or controvert these findings recorded by the learned CIT(A) on appreciation of the details and documents furnished by the assessee and keeping in view the same as well as all the facts of the case, we do not find any justifiable reason to interfere with the impugned order of the learned CIT(A) giving relief to the assessee on this issue; the same is, therefore, upheld and Ground No.5 of the Revenue’s appeal is dismissed. 8. In Ground No.6, the Revenue has challenged the deletion by the learned CIT(A) of the addition of Rs.22,56,838/- made by the Assessing Officer on account of unexplained cash credit. 8.1 During the year under consideration, the assessee had accepted unsecured loans from two parties namely Malpani Securities and Shree Ganesh Traders amounting to Rs.15,06,838/- and Rs.7,50,000/- respectively. ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 14 Although the assessee, during the course of assessment proceedings before the Assessing Officer, furnished a ledger account of the said two parties duly signed by the authorized signatories, he could not furnish other documentary evidences required by the Assessing Officer in the form of confirmation, PAN, bank statement, ITR etc. The Assessing Officer, therefore, treated the credits appearing in the name of the two parties aggregating to Rs.22,56,838/- as unexplained and addition to that extent was made by him under Section 68 of the Act to the total income of the assessee. 8.2 The addition of Rs.22,58,838/- made by the Assessing Officer under Section 68 of the Act was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) deleted the said addition made by the Assessing Officer for the following reasons given in paragraph Nos. 7.6 & 7.6.1 of his impugned order:- “7.6 In the fifth ground of appeal, the appellant has contested the addition of Rs. 22,56,838/- in respect of 2 cash credits. The A.O. made addition as the appellant could not submit necessary details in support of these two cash credits except the confirmation of parties. Before me, the appellant submitted copy of account of the parties for the subsequent years along with bank statements as additional evidences and contended that the impugned cash credits were already repaid. The appellant relied upon Hon'ble. Gujarat HC judgment in case of Chandrashekhar Ayachi Vs C1T-1, Rajkot (42 taxmann.com 251) and submitted that where the department has accepted the repayment of loan in subsequent year, no addition can be made in preceding year on account of unexplained cash credit. The appellant also submitted that the necessary details of confirmation and PAN of the lender were placed before the A.O. and therefore it was incumbent on the part of the A.O. to make direct inquiries to the lender before treating the unsecured loans as unexplained. Finally, the appellant requested, on the strength of Gujarat HC judgment in case of Megha Industries (29 taxmann.com 404) that the credit of trading addition against the addition of cash credit should be granted. This submission along with additional evidences was forwarded ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 15 to the A.O. for his comments. The A.O. simply objected to the admission of additional evidences and contented that the appellant failed to discharge the primary onus. In the rejoinder, the appellant once again reiterated his stand. 7.6.1 I have duly considered the above. It is seen that impugned unsecured loans have been repaid in subsequent year through banking channels and there is no adverse findings on record for such repayment. This being so, the Gujarat HC judgment in case of Chandrashekhar Ayachi (supra) squarely applies to the case of the appellant. It has been held by the jurisdictional high court in the said case that where the department had accepted repayment of loan in subsequent year, no addition for the loan can be made in the year of acceptance. The appellant deserves to succeed on this score. The A.O. failed to conduct any inquiries even in the remand proceedings though the relevant material was present before him. In the absence of any adverse findings, the unsecured loans cannot be treated as unexplained. There is also merit in-the alternative argument of the appellant regarding granting of credit of trading addition against the unexplained cash credit as this argument is supported by the jurisdictional High Court judgment in case of Megha Industries (supra). Since I have already confirmed the trading addition of Rs.54,53,224/- in para 5.3.2 hereinbefore, no separate addition in respect of cash credits of Rs.22,56,838/- is required even if they are treated as unexplained. Accordingly, the addition of Rs. 22,56,838/- is hereby deleted and this ground of appeal is allowed.” 8.3 We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the copy of relevant bank statement was filed by the assessee before the learned CIT(A) as an additional evidence pointing out that both the creditors were paid the amount in question through banking channel during the subsequent year. It was also submitted by the assessee before the learned CIT(A) that the confirmation of both the creditors along with PAN were placed before the Assessing Officer, but no inquiry whatsoever was made by him to verify the relevant credits before treating the same as unexplained. This submission made by the assessee along with the additional evidence was forwarded by the learned CIT(A) to the Assessing Officer for verification, but besides objecting to the admission of the additional evidence, nothing was pointed ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 16 out by the Assessing Officer in his remand report submitted to the learned CIT(A) challenging the stand of the assessee on merit of the issue. On verification of the additional evidence filed by the assessee, the learned CIT(A) found that both the credits in question were duly cleared by the assessee by making payments through banking channel in the subsequent year. He also found that the issue was squarely covered by the decision of Hon’ble Gujarat High Court in the case of Chandrashekhar Ayachi (supra) cited on behalf of the assessee wherein it was held that where the repayment of loan was accepted by the Department in the subsequent year, no addition on account of the same could be made in the preceding year on account of unexplained cash credit. Respectfully following the said decision of the Hon’ble jurisdictional High Court, the learned CIT(A) deleted the addition made by the Assessing Officer under Section 68 of the Act; and, keeping in view all the facts of the case, we find no infirmity in the impugned order of the learned CIT(A) on this issue warranting any interference. The same is accordingly upheld and the Ground No.6 of the Revenue’s appeal is dismissed. 9. In Ground No.7, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs.9,00,000/- made by the Assessing Officer on account of disallowance under Section 40(a)(ia) of the Act. 9.1 During the year under consideration, the assessee had made payment on account of dumper hire charges amounting to Rs.9,00,000/-. Since no tax at source was found to have been deducted by the assessee from the said payment, the Assessing Officer invoked Section 40(a)(ia) of the Act and made disallowance of Rs.9,00,000/-. ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 17 9.2 The disallowance of Rs.9,00,000/- made by the Assessing Officer under Section 40(a)(ia) of the Act was challenged by the assessee in an appeal filed before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), additional evidence was filed by the assessee to show that TDS was duly made from the payment of dumper hire charges and the same was also paid before the due date of filing of return. After getting this additional evidence verified from the Assessing Officer, the learned CIT(A) deleted the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act for the following reasons given in paragraph no.7.7.1 of his impugned order:- “7.7.1 I have duly considered the above. It is observed that the appellant had deducted tax at source from the payments of dumper hire charges. Part of the TDS was paid during the year and balance amount of Rs. 61,800/- was paid on 23-07-2009 i.e. before the due date filing of return of income. The Finance Act, 2010 has amended section 40(a)(ia) to provide that if TDS is deducted during the year and paid on or before the due date u/s. 139(1), no disallowance u/s. 40(a)(ia) shall be made. This amendment is considered to be hardship removing and therefore retrospective in operation by Kolkata HC in case of Virgin Creations. This judgment of Kolkata HC has been followed by the Hon'ble Rajkot ITAT which is evident from the copy of the orders placed in the paper book by the appellant. Respectfully following the same, I hold that disallowance u/s. 40(a)(ia) of Rs. 9,00,000/- is not justified in the appellant's case. The same is hereby deleted. This ground of appeal is allowed.” 9.3 We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the tax at source from the payment of dumper hire charges in question was found to have been deducted and paid by the assessee before the due date of filing of return of income for the year under consideration and on the basis of this finding, the learned CIT(A) deleted the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act by following the decision of ITA No. 73 & 82/Rjt/2015 Assessee - Shri Krishnabhagwan R. Sharma AY : 2009-10 18 Hon’ble Kolkata High Court in the case of Virgin Creations (supra) wherein it was held that the amendment made in Section 40(a)(ia) by the Finance Act, 2010 was applicable retrospectively. This issue thus is squarely covered by the decision of the Hon’ble Kolkata High Court in the case of Virgin Creations (supra), which has been followed by the Rajakot Bench of this Tribunal in various decisions to give relief to the assessee. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) and upholding the same, dismiss Ground No.7 of the Revenue’s appeal. 10. In the result, the appeal of the Revenue is dismissed. 11. In the combined result, the appeal of the assessee is partly allowed while the appeal of the Revenue is dismissed. Order pronounced in the open Court on 20 th July, 2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 20/07/2022 *Bt /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Rajkot, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Rajkot