SGARG Enterprises Private Limited, Chandigarh V. DCIT, CC-1, Chandigarh

ITA 96/CHANDI/2023

AI Insights

The case involves SGARG Enterprises P.Ltd., which appealed against the order of the CIT(A)-3, Gurgaon, concerning the assessment year 2018-19. The primary issues revolved around the additions made under Section 68 for unexplained credits and under Section 37 for unsubstantiated expenses. The Assessing Officer (AO) had added Rs.16,97,000 as unexplained credit and other amounts for various expenses citing lack of evidence. The CIT(A) upheld these additions, leading to the appeal. The Tribunal found that the addition under Section 68 was inappropriate as the income was already assessed in the hands of the Director, Shri Sunny Garg. However, the Tribunal agreed with the AO regarding the unsubstantiated expenses.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127511 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 26-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 22-02-2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Additional evidence; Corroborative evidences
• Section: 147; 68; 148; 37; 142(1); 13

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’ CHANDIGARH BEFORE: SHRI A.D.JAIN, VICE PRESIDENT AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 96/CHD/2023 नधा रण वष / Assessment Year : 2018-19 SGARG Enterprises P.Ltd., SCO-9, Sector 7, Madhya Marg, Chandigarh. बनाम VS The DCIT,, Central Circle-1, Chandigarh. थायी लेखा सं./PAN /TAN No: AAECR5506M अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Shri Nikhil Goyal, Advocate & Shri Ashok Goyal, C.A. राज व क ओर से/ Revenue by : Shri Dharamvir, JCIT, Sr.DR तार"ख/Date of Hearing : 27.07.2023 उदघोषणा क तार"ख/Date of Pronouncement : 22.09.2023 आदेश/ORDER PER A.D.JAIN, VICE PRESIDENT This is assessee's appeal for assessment year 2018-19 against the order dated 18.01.2023 passed by the ld. CIT(A)-3, Gurgaon. The following grounds have been taken : “1. Whether order passed by the Ld. CIT(A) upholding the additions proposed by the Ld. AO is bad in law and liable to be quashed? 2. Whether Ld. CT1(A) has erred in upholding the addition of Rs.5,16,582/- under section 37of the Act? ITA 96/CHD/2023 A.Y.2018-19 Page 2 of 14 3. Whether Ld. CIT(A) has erred in upholding the addition of Rs. 16,97,000/- under section 68 of the Act despite disclosing the identity, credit worthiness and genuineness of the Director. 4. Whether order passed by the ld. CIT(A) is violative of principles of Natural Justice. 2. Apropos Ground No.3, the Assessing Officer ( in short ‘the AO’) observed that as per the Balance Sheet of the assessee company, during the year under consideration, unsecured loan of Rs.16,97,000/- had been taken by the company from Shri Sunny Garg, Director of the company. To verify the genuineness and credit worthiness of the transaction, the assessee was asked to furnish copy of PAN and Income Tax Returns of Shri Sunny Garg for the last three years and in the absence thereof, to show cause as to why it should not be treated as unexplained, as per provisions of the Income Tax Act. 3. In response, the assessee submitted before the AO that the entire transactions of unsecured loans from Shri Sunny Garg had been done through proper banking channels only; that all the relevant transactions were financed by Shri Sunny Garg through various sources; that for brevity and ease of reference, copy of Bank Statement showing the transactions of both debit and credit, was being enclosed; that as per the Bank Statement, the relevant entries of unsecured loan showed that the amounts had been received from the account ITA 96/CHD/2023 A.Y.2018-19 Page 3 of 14 of Shri Sunny Garg only; that Shri Sunny Garg was the Director of the company; that such practice of receipt of unsecured loans had been accepted by the Department in the cases of Associate Companies of the assessee company, namely, M/s Sadashiv Holdings, for assessment year 2014-15, M/s Sunny Garg Family Trust, for assessment year 2017-18 and M/s Sunny Garg Enterprises Pvt. Ltd., for assessment year 2017-18. 4. The AO, however, did not find the reply filed by the assessee to be tenable. It was observed that the assessee had submitted only the bank statement of Shri Sunny Garg and had failed to file even the copies of ITRs and PAN, despite Shri Sunny Garg being the Director of the company; that in the absence of these documents, the credit worthiness of the transaction could not be proved; that the assessee had stated that the transaction had been done through banking channel and they were financed by Shri sunny Garg through various sources; that this did not prove the identity, credit worthiness of the creditor and the genuineness of the transaction, in the absence of PAN and copies of ITRs. The AO placed reliance on various decisions in this regard. It was further observed by the AO that the assessee's contention that the Department had accepted such practice in some other cases also could not be a good ground for consideration, as the facts and circumstances ITA 96/CHD/2023 A.Y.2018-19 Page 4 of 14 of every case are different and each and every case as well as assessment year has to be analyzed separately. The AO, thus, held that the assessee had failed to establish the identity and credit worthiness as well as genuineness of the transaction in respect of the claimed unsecured loan of Rs.16,97,000/-. This amount was, therefore, treated as unexplained credits in the books of account of the assessee and it was added to the returned income of the assessee u/s 68 read with Section 115BBE of the Act. 5. While upholding the addition, the ld. CIT(A) observed that even in the appellate proceedings, the assessee had not made any further submission in order to substantiate and explain the unsecured loan of Rs.16,97,000/-; that the onus for this was on the assessee to prove the credit worthiness; that merely furnishing of bank statement of Shri Sunny Garg did not prove his credit worthiness; that copy of his ITR had not been furnished and no explanation regarding the source of the credits in the bank account of Shri Sunny Garg had been furnished; that such documents are important to explain his credit worthiness for giving unsecured loan of Rs.16,97,000/-; that such onus was not discharged; and that so, the AO was justified in treating the amount as unexplained credit in the books of account u/s 68 of the Act. ITA 96/CHD/2023 A.Y.2018-19 Page 5 of 14 6. Before us, the ld. Counsel for the assessee has contended that where, as in the present case, the Director of the company has not filed his return of income, it is impossible for the assessee company to submit his ITR before the AO; that the law does not permit the adjudicating authority to compel an assessee to perform an impossible task; that separate assessment proceedings u/s 147 of the Act had been initiated against Shri Sunny Garg, Director of the assessee company, for the year under consideration; that it was in response to the notice u/s 148 of the Act that Shri Sunny Garg filed his return of income for assessment year 2018-19 on 30.03.2023, that for assessment year 2017-18, on 21.02.2023 and that for assessment year 2016-17, on 20.02.2023. In this regard, the acknowledgement of these ITRs have been filed before us, which have been sought to be admitted as additional evidence. It has been stated that assessment orders in the case of Shri Sunny Garg were passed, for assessment year 2018-19, on 30.05.2023, for assessment year 2017-18, on 25.05.2023 and for assessment year 2016-17 on 29.05.2023. Again, copies of these orders have been filed and request has been made for admitting the same as additional evidence. It has further been submitted that the date on which the ITR for the year under consideration was filed by Shri Sunny Garg was 30.03.2023, i.e., after the passing of the impugned order by the ld. CIT(A), ITA 96/CHD/2023 A.Y.2018-19 Page 6 of 14 i.e. on 18.01.2023, in the assessee's case. It has been submitted that also, proceedings against Shri Sunny Garg were concluded by the AO after the passing of the CIT(A)’s order in the assessee's case. 7. It has also been submitted that the PAN and Bank Statement of Shri Sunny Garg had been filed before the AO alongwith the reply filed on 22.02.2021, in response to the notice issued u/s 142(1) of the Act, to prove the identify and credit worthiness of the lender and the genuineness of the transaction. Attention, in this regard, has been drawn to the bank statement, which is at APB-1, page 52. It has been submitted that as such the assessee's onus u/s 68 of the Act was duly discharged and it stood shifted to the AO, but was not discharged by the AO. 8. It has further been contended that the income stands assessed by the AO in the hands of the Director, Shri Sunny Garg, as available from the assessment order dated 30.05.2023; and that so, addition of the same amount cannot be made in the hands of the assessee. Attention has been drawn to the assessment order for assessment year 2018-19, in the case of Shri Sunny Garg. It has been stated that when the income of Shri Sunny Garg, Director, Director of the assessee company, is assessed separately, the source of ITA 96/CHD/2023 A.Y.2018-19 Page 7 of 14 unsecured loan given by him to the assessee company stands duly explained and the addition thereof in the hands of the assessee company, as confirmed by the ld. CIT(A), is entitled to be deleted. 9. The ld. DR, on the other hand, has placed strong reliance on the impugned order. It has been contended that since the assessee could not prove any of the ingredients of Section 68 of the Act with regard to the unsecured loan in question, the ld. CIT(A) has rightly upheld the addition made by the AO. 10. We find that first of all, the additional evidence sought to be filed by the assessee is evidenced which has come into existence after the passing of the impugned order. Further, such evidence is in the public domain and available with the Department. Such evidence is in the shape of ITR of Shri Sunny Garg for assessment years 2016-17 to 2018-19 and his assessment orders for these years. The assessment orders were passed after the passing of the order presently under appeal and the ITR was filed only on issuance of notice u/s 148 of the Act. These evidences are essential for a proper adjudication of the matter at hand. Therefore, these additional evidences are admitted. 11. The ld. CIT(A), while confirming the addition, has observed that the assessee did not furnish copies of ITR of ITA 96/CHD/2023 A.Y.2018-19 Page 8 of 14 Shri Sunny Garg and that no explanation regarding the source of credits in the bank account of Shri Sunny Garg was furnished. We find that the ITR in the case of Shri Sunny Garg was filed on 30.03.2023, i.e., after the passing of the order of the ld. CIT(A), on 18.01.2023, in the case of the assessee. In pursuance of the ITR, assessment order in the case of Shri Sunny Garg stands independently passed on 30.05.2023, where the ITR was filed on 30.03.2023. The amount of Rs.16,97,000/- stands assessed in the hands of Shri Sunny Garg, Director of the assessee company. Therefore, there is no occasion for assessing the same in the hands of the assessee as this would amount to double taxation, which is impermissible in law. 12. Accordingly, the addition of Rs.16,97,000/- in the hands of the assessee is deleted. Ground No. 3 is accepted. 13. So far as regards Ground No.2, the AO found that the assessee had claimed Employee Benefit Expenses of Rs.2,15,000/-, other expenses of Rs.2,99,120/- and Finance Cost of Rs.2462/-. Apropos the Employee Benefit Expenses of Rs.2,15,000/-, the AO asked the assessee to furnish the details of all the expenses debited by the assessee during the period under consideration, alongwith their copy of account, mode and source of payments with complete supporting ITA 96/CHD/2023 A.Y.2018-19 Page 9 of 14 evidences, in absence of which, the assessee was asked to show cause why the expenses claimed, despite neither doing any business, nor earning any revenue during the year, be not added back to the assessee's income. 14. In response, the assessee submitted that this amount belonged to salary of Accountant and Peon and such expenses could not be ignored if the assessee had not done any business. 15. The AO observed that, however, no details of employees, source and mode of payments and any documentary evidence had been provided by the assessee in support of its claim. The AO, accordingly, disallowed the claim of Rs.2,15,000/- and added it back to the assessee's total income, as being expenses not supported by any details and evidences. 16. Concerning the other expenses of Rs.2,99,120/-, the AO observed that the Profit & Loss Account of the assessee showed that the assessee had claimed such expenses therein. The AO asked the assessee to furnish the details of all the expenses debited by the assessee during the year under consideration alongwith their copy of account, mode and source of payments with complete supporting evidences, in the absence of which, the assessee was to show caused why the expenses claimed despite not doing any business, nor earning ITA 96/CHD/2023 A.Y.2018-19 Page 10 of 14 any revenue during the year, should not be added back to the assessee's income. 17. The assessee submitted that these expenses pertained to running and maintenance, audit fees, ROC Fees, etc., which were normal necessary business expenses; that these expenses could not be ignored even if the assessee had not done any business. The assessee filed copies of accounts of Vehicle Running and Maintenance Expenses, ROC Expenses, Repair and Maintenance Expenses, Miscellaneous Expenses, and Audit Fees payable. 18. The AO observed that the assessee's reply was not tenable, as no satisfactory documentary evidences or details had been furnished by the assessee. It was observed that no details of source of payment of copies of bills/vouchers had been submitted by the assessee; that further, it was also seen from the copies of accounts furnished by the assessee that the payments had been made in cash, however, no supporting documents like Cash Book or Log Book had been furnished to enable the verification of the assessee's claim, if the expenses had been incurred wholly and exclusively for the purpose of business, and the source of the payments; that no details of the nature of the ROC Fees had been furnished; that thus, ROC Fees being capital in nature, could not be allowed; that ITA 96/CHD/2023 A.Y.2018-19 Page 11 of 14 neither details of source of Audit Payment had been filed, nor had it been shown on the liability side in the Balance Sheet. Thus, the AO disallowed the claim of Rs.2,99,120/-, in the absence of supporting evidences, and added it back to the assessee's total income for not being supported by any documentary evidence. 19. With regard to the claim of Finance Cost of Rs.2462/-, the AO observed that as per the Profit & Loss Account, the assessee had claimed Finance Cost of Rs.6,06,697/-. The AO asked the assessee to furnish the details of all the expenses debited by it during the period under consideration, alongwith their copy of account, mode and source of payments with complete supporting evidences and, in the absence thereof, to show cause as to why, despite neither doing any business, nor earning any revenue during the year, the expenses claimed should not be added back to the assessee's income. 20. In response, the assessee stated that it had itself disallowed an amount of Rs.6,04,325/-. 21. The AO made addition of the remaining amount of Rs.2462/- , disallowing the same, as being expenses not supported by any documentary evidence, or justification. 22. The ld. CIT(A) upheld the addition of Rs.5,16,582/-, holding that the claim of the expenses remained ITA 96/CHD/2023 A.Y.2018-19 Page 12 of 14 unsubstantiated; that the onus was on the assessee to furnish necessary details in support of the expenses claimed, as per the provisions of Section 37 of the Act, and that such onus had not been discharged. 23. The ld. Counsel for the assessee has submitted that during the assessment proceedings, it was contended before the AO that the expenses were incurred on the salary of the Accountant and Peon, running and maintenance; audit fees and ROC fees; that the AO had disallowed other expenses of Rs.2,99,120/-, Employee Benefit Expenses of Rs.2,15,000/- and Finance Cost of Rs.2462/-; that the expenses incurred by the assessee during the year, were routine and necessary business expenses; that such expenses cannot be ignored even if the assessee had not done any business; that it cannot be ignored that out of the amount of Rs.6,06,697/-, the assessee had itself disallowed the borrowing cost of Rs.6,04,235/- in the ITR for the year under consideration, which was not paid during the year; that therefore, the expenses claimed by the assessee are genuine and legitimate; and that this being so, the expenses of Rs.5,16,582/- are entitled to be allowed. 24. The ld. DR, on the other hand has placed reliance on the impugned order. ITA 96/CHD/2023 A.Y.2018-19 Page 13 of 14 25. We find the grievance of the assessee to be justified despite the fact that the assessee did not carry out any business activity during the year, the fact remains that the was in existence during the year. It is also undisputed that the expenditure in question was incurred as normal expenditure during the year. That the salary of the Accountant and Peon had to be paid. The running and maintenance expenses, audit fees and ROC fees were also a necessary concomitant. Thus, the Employee Benefit Expenses of Rs.2,15,000/- and other expenses of Rs.2,99,120/- are allowed and the addition in this regard is deleted. However, no details of finance cost of Rs.2462/- having been furnished, the addition to this extent, as confirmed by the ld. CIT(A), is upheld. 26. Accordingly, ground No. 2 is partly accepted. 27. In the result, the appeal is partly allowed, as indicated. Order pronounced in the Open Court on 22 nd September,2023. Sd/- Sd/- (VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT “Poonam” ITA 96/CHD/2023 A.Y.2018-19 Page 14 of 14 आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent 3. आयकर आयु猴/ CIT 4. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar