Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 135647 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 2 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-03-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
12-03-2023
Assessment Year
2013-2014
Appeal Filed On
07-01-2018
Judgement Text
आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./ITA No.95/AHD/2018 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year:2013-2014 Ojas Tarmake Pvt. Ltd., Survey No.354, Picha(Savli), Vadodara-391780. PAN: AAAC15123K Vs. I.T.O, Ward-2(1)(1), Vadodara. (Applicant) (Respondent) Assessee by : Shri M.K. Patel, A.R Revenue by : Shri A.P Singh, CIT.D.R सुनवाई क तारीख/Date of Hearing : 13/03/2023 घोषणा क तारीख /Date of Pronouncement: 24/03/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, Vadodara, dated 17/10/2017 arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-2014. ITA no.95/AHD/2018 A.Y. 2013-14 2 2. The assessee has raised the following grounds of appeal: 1.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the huge additions of Rs.6,10,38,513/- made on account of unsecured loans received from various parties by treating the same as unexplained under section 68 of the Income Tax Act. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in dismissing the ground relating to initiation of penalty proceedings under section 271{l)(c) of the Income Tax Act, 1961 for the alleged concealment and/or furnishing of inaccurate particulars of income. 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming charging of interest under section 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 4.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal. 3. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the addition by the AO of unsecured loan of Rs. 6,10,38,513/- as unexplained cash credit under section 68 of the Act. 4. The facts in brief are that the assessee is private company and engaged in the business of manufacturing and trading of Bitumen and its allied products. The case of the assessee was selected for scrutiny assessment under CASS. The AO during the assessment proceeding found that the assessee shown following unsecured loans/deposits: Sr.No. Name of the lender/depositor Address PAN Amount of loan taken/accepted Amount of loan outstanding (in Rs.) 1. Ashim Marketing 301, Adalya Chamber, Opp Cash & Carry, Nr SBI B, Ellora Park, Baroda. AADCA8209P 10,00,000/- 3,55,500 2. Harish Ambika Prasad Gayatri Nagar, Rajul Industries Lane P.O Madhapur, Bhuj, Kutch. ACAPP1061E 8,00,000/- NIL 3. Kaushalyaben Rajesh 53, Arunuday Society, Alkapururi, Baroda-390007. - 7,00,000/- NIL ITA no.95/AHD/2018 A.Y. 2013-14 3 4. Pooja Garments Pvt. Ltd. - - NIL 5,84,43,771/- 5. Prakash Fortan Softech Ltd. - - NIL 94,742/- 5. The AO treated the amount of unsecured loan received during the year from the first three parties in the above table and the amount of outstating loan of last 2 parties aggregating to Rs. 6,10,38,513/- as income of the assessee under section 68 of the Act. 6. On appeal by the assessee, the learned CIT(A) confirmed the addition made by the AO by holding the assessee has not explained the credit of loan during the year from the first three parties mentioned in above table. Similarly, the learned CIT(A) treated outstanding loan of last 2 parties as mentioned in above table as liability the assessee ceased to exist and accordingly sustained the addition made by the AO. 7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 8. The learned AR before us filed paper books running from pages 1 to 41 and contended that all the transactions of the loan were carried out through the banking channel. Similarly, the confirmation from the loan parties were also furnished along with PAN, ITR, bank statement etc. to justify the identity, genuineness of the transaction and creditworthiness of the parties which are available on record. 8.1 It was also contended that the loan from M/s Pooja Garments and Parkash Fortan Softech Ltd. were obtained in the earlier years and therefore the question of invoking the provisions of section 68 of the Act do not arise. Similarly, such loans cannot be made subject to tax under the provisions of section 41(1) of the Act as the conditions specified therein have not been complied with. ITA no.95/AHD/2018 A.Y. 2013-14 4 9. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The provision of section 68 of the Act fastens the liability on the assessee to make proper and reasonable explanation to the AO with regard to sum credited in the books of account. The assessee is liable to provide proof of the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the credit entries under section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under: “It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine.” 10.1 Now, 1 st we proceed to understand the identity of the party. The identity of the party refers to the existence of such party which can be proven based on the evidences. As such the identity of a party can be established by furnishing the name, address and PAN detail, bank details, passport and other details of the Government agencies. 10.2 The next stage comes to verify the genuineness of the transaction. Genuineness of transaction refers what has been asserted is true and authentic. A ITA no.95/AHD/2018 A.Y. 2013-14 5 genuine transaction must be proved to be genuine from all prospective and not merely on paper. The documentary evidences should not provide a mask to cover the actual transaction or designed in way to present the transaction as true but the same is not. Genuineness of transaction can be proved by submitting confirmation of the party along details of mode transaction but merely showing transaction carried out through banking channel is not sufficient enough. As such, the same (genuineness) should also be proved by circumstantial/ surrounding evidences as held by the Hon’ble supreme court in case of Durga Prasad More reported in 82 ITR 540 and in case of Smt. Sumati Dayal reported in 214 ITR 801. 10.3 The last stage comes to verify the creditworthiness of the parties. The term creditworthiness as per Black Law Dictionary refers as: "creditworthy, adj. (1924) (Of a borrower) financially sound enough that a lender will extend credit in the belief default is unlikely; fiscally healthy-creditworthiness. 10.4 Similarly in The New Lexicon Webster's Dictionary, the word "creditworthy" has been defined as under:- "creditworthy, adj. of one who is a good risk as a borrower." 10.5 It the duty of the assessee to establish that creditor party has capacity to advance such loan and having requisite fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner. 10.6 In the light of the above discussion, we proceed to adjudicate the issue in hand with regard to each loan creditor separately. (A) I-Ashmi Marketing Pvt Ltd ITA no.95/AHD/2018 A.Y. 2013-14 6 i. The assessee in the books of account shown to have received loan of ₹10 lakhs from the captioned party on 1 st August 2012 out of which an amount of Rs. 4,74,500/- and Rs. 1.7 Lakh was repaid through cheque dated 29 th & 30 Th March 2013 leaving outstanding balance of Rs. 3,55,500/-. The assessee in support of genuineness of the transaction furnished copy of ledger confirmation, PAN card of the party and its bank statement showing repayment of loan. Accordingly, the assessee before the lower authorities contended that loan amount received through banking channel and part of the loan was repaid through banking channel which also confirmed by the party. Therefore, genuineness of such credit cannot be doubted. Thus, prima facie, it appears that the assessee has discharged primary onus imposed under section 68 of the Act. However, there were certain defects observed by the authorities below concurrently as detailed below: ii. It is not known who signed the copy of confirmation on behalf of creditor. iii. The bank statement of creditor and copy ITR or any other document with regard to creditworthiness has been not provided iv. The amount of Rs. 4,74,500/- was shown as repayment to the impugned creditor namely Ahsmi Marketing Pvt Ltd but the same was actually gone to another party namely M/s Punamchand Devchand of Bharuch. v. Similarly, there was withdrawal of a sum of ₹1,70,000/- from the bank account of the assessee through the bearer cheque by the person namely Shri Ashokbhai but the same has been shown repayment to Ahsmi Marketing Pvt Ltd. 10.7 The assessee before the authorities below has not justified why the payment was made to the parties discussed aforesaid after adjusting the account of the loan party namely Ashmi Marketing Pvt Ltd. Admittedly, there is no prohibition to make the payment to the 3 rd party on behalf of the loan party but ITA no.95/AHD/2018 A.Y. 2013-14 7 such transaction should be justified based on the documentary evidence. As such, the onus was shifted again upon the assessee after the AO made independent inquiry on the basis of available material and brought new finding. Accordingly, query was raised by the revenue with respect to the repayment of the amount discussed above which was adjusted in the account of Ashmi Marketing Pvt Ltd. But the assessee failed to rebut the above finding or failed to make any satisfactory reply to the authorities below. Accordingly, a doubt arises in the mind about the genuineness of the transaction of the loan shown by the assessee in the books of accounts. 10.8 The Hon’ble Supreme Court in the case of CIT vs. P. Mohanakala reported in 291 ITR 278 while dealing with scope of provision of the section 68 of the Act held if a sum credited in the books of account of the assessee then the assessee is required to explained the nature and sources of such credit and such explanation should be proper and reasonable. The AO after application of mind and verification found that the explanation offered by the assessee is not satisfactory then such opinion of the AO is prima facie evidence against the assessee and the assessee is required to rebut the same. In case the assessee failed to rebut the same then such credit can be held as income of the assessee. The relevant observation of the Hon’ble Supreme Court in aforementioned case is extracted as under: A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by assessees; that such credit has to be of a sum during the previous year; and that the assessees offer no explanation about the nature and source of such credit found in the books or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression 'the assessees offer no explanation' means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. [Para 14] It is true that even after rejecting the explanation given by the assessees, if found unacceptable, the crucial aspect, whether on the facts and circumstances of the case, it should be inferred that the sums credited in the books of the assessees constituted income ITA no.95/AHD/2018 A.Y. 2013-14 8 of the previous year, must receive the consideration of the authorities, provided that the assessees rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory. Section 68 itself provides that where any sum is found credited in the books of the assessees for any previous year, the same may be charged to income tax as the income of the assessees of the previous year, if the explanation offered by the assessees, about the nature and source of such sums found credited in the books of the assessees, is in the opinion of the Assessing Officer not satisfactory. Such opinion found itself constitutes a prima facie evidence against the assessees, viz., the receipt of money, and if the assessees fail to rebut the said evidence, the same can be used against the assessees by holding that it was a receipt of an income nature. In the instant case, the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinion formed by the Assessing Officer that the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation was not acceptable, the material and attending circumstances available on record did not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the assessees. No such attempt had been made before any authority. [Para 21] 10.9 In view the above, we find that the AO on the basis of material supplied by the assessee made independent inquiry with banks and brought evidences that the repayment shown to the loan party actually has gone to someone else and accordingly raised the question with regard to the genuineness of loan. But the assessee failed to rebut the finding of the AO before the lower authorities as well as before us. Therefore, in the absence of any justification from the assessee about the repayment of the loan to the 3 rd party including the bearer cheque, we do not find any infirmity in the order of the learned CIT(A) to the extent of his finding with regard to credit of loan from the party namely Ashmi Marketing Pvt. Ltd. (B) II-Harish Ambika Prasad i. The assessee during the year from the captioned party received loan of Rs. 8 lakh dated 7 th April 2012 which was repaid during the year dated 23 rd May 2012. The party namely Shri Harish Ambika Prasad also confirmed the transaction in reply to notice issued under section 133(6) of the Act and also furnished the required documents such as ledger copy, bank statement and copy of ITR. However, the lower authorities treated such credit of loan as unexplained merely for the reason that the bank of account of the party was credited just before transferring ITA no.95/AHD/2018 A.Y. 2013-14 9 the fund to the assessee bank. In our considered opinion the credit of loan cannot be held unexplained merely for the reason that bank account of the loan party was credited from unknown sources. As the obligation of the assessee under section 68 of the Act was to explain the nature and source of credit in its books only and not the sources of source. In the case on hand, the assessee’s obligation has been duly discharged by furnishing necessary document which was also confirmed by the party independently in response to notice issued under section 133(6) of the Act. ii. Be that as it may be, the undisputed fact that the amount of loan received by the assessee was returned back to the loan party during the year itself and all the transactions were carried out through banking channel. Therefore, in the light of judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini Builders reported in 256 ITR 360, the genuineness of such credit of loan cannot doubted. The relevant observation of Hon’ble court in the aforementioned case reads as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.” 10.10 Thus, in view of the above and after considering the facts in totality we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him with regard to loan credit of Rs. 8 lakh from the party namely Shri Harish Ambika Prasad. (C) III- Kaushalya Ben 10.11 The assessee shown receipt of loan amounting to Rs. 7 Lakh dated 7 th April 2012 from Smt. Kaushalya Ben which was repaid by the assessee in the month of May 2012. All the transactions were carried out through banking channel. ITA no.95/AHD/2018 A.Y. 2013-14 10 However, the lower authorities treated the same as unexplained credit for the following reason: i. Confirmation letter not signed ii. Copy of ITR, bank statement and other details of Smt. Kaushalya ben were not furnished to establish genuineness and credit worthiness. iii. The notice issued under section 133(6) of the Act was not responded. 10.12 In this regard, we note that the amount was received through banking channel and the same was repaid through banking channel within the period of a month or so. There is no finding of the lower authorities that the amount was not received from the impugned party or repayment of the amount gone to any third party. Therefore, in our considered view and applying the ratio laid down by the Hon’ble Jurisdictional High Court in case of CIT Vs. Rohini Builders (supra) the action of the authorities below are not justified. Hence, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made on account of loan credit from the party namely Smt. Kaushalya Ben for Rs. 7 Lakh. (D) IV & V- M/s Pooja Garments P Ltd and M/s Parkash Fortan Softech Ltd 10.13 The assessee was having outstanding unsecured loan from past several years for Rs. 5,84,43,771/- and Rs. 94,742/- from the party namely M/s Pooja Garments P Ltd and M/s Parkash Fortan Softech Ltd respectively which was treated as unexplained cash credit under section 68 of the Act. However, the learned CIT(A) while confirming the addition made by the AO held that the assessee has not furnished any detail of the party except unsigned confirmation copy. The amount has been outstanding for last several years and there being no information that party is perusing the recovery of the amount. Accordingly, the learned CIT(A) held the liability of the assessee came to be ceased as provided under section 41(1) of the Act. Therefore, the same was liable to be taxed in the hands of the assessee. The learned CIT(A) in holding so made reference to the several judicial pronouncements. ITA no.95/AHD/2018 A.Y. 2013-14 11 10.14 In this regard, we note that the amount was not credited during the year under consideration, as such the same was carried forward from earlier years. Therefore, the provision of section 68 of the Act cannot be made applicable on the same in the year under consideration. 10.15 Now coming to the finding of the learned CIT(A) that liability of the assessee to pay such loan came to be ceased and the same is liable to be taxed under section 41(1) of the Act. In this regard, we feel pertinent to refer the provision of section 41(1) of the Act which reads as under: 1. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.—For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first- mentioned person under clause (a) or the successor in business under clause (b) of that sub- section by way of writing off such liability in his accounts. Explanation 2.—For the purposes of this sub-section, "successor in business" means,— (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company ITA no.95/AHD/2018 A.Y. 2013-14 12 10.16 From the perusal of the above provision, it is inferred that there should be two conditions required to be satisfied before any amount could be brought to tax under section 41(1) of the Act. These conditions are that that amount in question has been allowed as deduction in any past assessment year and there has been a receipt of any amount or benefit by way of a cessation or remission with regard to the above allowance in any subsequent year. The scheme of provision of section 41(1) are that if an expenditure or loss or trading liability is allowed for any assessment year and subsequently if the assessee recoups the loss or expenditure or gets some benefit by way of remission or cessation of the trading liability, then such amount or benefit is to be taxed in the year in which such liability came to be ceased. 10.17 However, there is no material and finding on record by the revenue authorities that the assessee has been allowed any deduction in any past assessment year on account of credit of such loans liabilities. Therefore, in our considered opinion, the provision of section 41(1) of the Act cannot be invoked in the given facts and circumstances. In holding so we draw support and guidance from the judgment of Hon’ble Bombay High Court in case of Mahindra and Mahindra Ltd reported in 261 ITR 501 where it was held as under: So far as applicability of section 41(1) is concerned, one of the requirements is that the assessee should have obtained a deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. In the instant case, the assessee had not obtained such allowance or deduction in respect of expenditure or trading liability in the earlier years. It was not disputed that the assessee had paid interest at 6 per cent over a period of 10 years to KJC. In respect of that interest, the assessee never got deduction under section 36(1)(iii) or section 37. Further, Toolings constituted capital asset and not stock-in-trade. Therefore, section 41(1) was not applicable. Secondly, assuming for the sake of argument that the assessee had got deduction on allowance, even then section 41(1) was not applicable because such deduction was not in respect of loss, expenditure or trading liability. [Paras 8 & 9] 10.18 The case law relied upon by the learned CIT(A) are distinguishable from the facts of the case of the assessee on hand. As such, in those cases there was finding on record that the assessee was allowed deduction on the amount in question in past years whereas no such information available on record in the case ITA no.95/AHD/2018 A.Y. 2013-14 13 of appellant assessee. Therefore, we are not in agreement with the case law relied by the AO/ ld. CIT-A. Thus, in view of the above and considering the facts in totality, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him on account of outstanding loan liabilities for Rs. 5,84,43,771/- and Rs. 94,742/- from the parties namely M/s Pooja Garments P Ltd and M/s Parkash Fortan Softech Ltd respectively. In view of the above discussion, the grounds of appeal of the assessee is partly allowed. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 24/03/2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/03/2023 Manish
AI Insights
The case involves Ojas Tarmake Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals)-2, Vadodara, concerning the assessment order for the year 2013-2014. The primary contention was regarding the addition of Rs.6,10,38,513 as unexplained cash credit under section 68 of the Income Tax Act, 1961, attributed to unsecured loans from various parties. The Tribunal examined the documentation and evidence provided by the assessee, including bank statements, PAN details, and confirmations from lenders, to ascertain the genuineness and creditworthiness of the loan transactions.
