MOHAN DAGADU CHOUGALE,KOLHAPUR V. ACIT, CENTRAL CIRCLE, KOLHAPUR

ITA 1312/PUN/2024

AI Insights

The case involves Mohan Dagadu Chougale, who appealed against the order of the Ld. CIT(A), Pune, which confirmed several additions made by the Assessing Officer under various sections of the Income Tax Act, 1961, for the assessment year 2020-21. The additions included unexplained excess stock, undisclosed business income from suppressed sales, and unexplained unsecured loans. The Tribunal found merit in the assessee's argument for telescoping the additions of excess stock and suppressed GP, leading to a modification of the addition amount. It was also decided that the excess stock should be taxed as business income at normal rates. However, the issue of unexplained unsecured loans was restored to the Assessing Officer for further examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633122 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Other Referred Cases: Yash Construction Co. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRADDHA NICHAL
• Assessee Lawyers: S NIKHIL S PATHAK; MAYURESH DOSHI
• Keywords: Set aside; Business income; Additional evidence
• Section: 143(3); 68; 131; 69; 69C; 40A(3); 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.1312/PUN/2024 Assessment year : 2020-21 Mohan Dagadu Chougale C/o Kapil Dugdhalaya and Sweet Mart, 3068, A Ward, Kapiltirth Market, Kolhapur – 416002 Vs. ACIT, Central Circle, Kolhapur PAN: ACWPC0051B (Appellant) (Respondent) Assessee by : S/Shri Nikhil S Pathak & Mayuresh Doshi Department by : Smt. Shraddha Nichal Date of hearing : 30-04-2025 Date of pronouncement : 12-06-2025 O R D E R PER R.K. PANDA, VP: This appeal filed by the assessee is directed against the order dated 12.04.2024 of the Ld. CIT(A), Pune - 11 relating to assessment year 2020-21. 2. The grounds raised by the assessee are as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) is not justified in confirming the addition of Rs.18,21,792/- u/s 69 of the Act on account of excess stock found during the survey. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming the addition made as undisclosed business income of Rs.16,31,913/- on account of GP on suppressed sales found during the survey arrived at by extrapolating sales for the year. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming the addition of Rs.70,11,472/- u/s 68 of the Act for unexplained unsecured loans when the source of the loan are explainable. 2 ITA No.1312/PUN/2024 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in not admitting the additional evidence produced before him. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming the addition of Rs.3,91,000/- made u/s 69C of the Act on account of cash payment to some relative. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming Disallowance of Rs.36,550/- u/s 40A(3) of the Act for cash payments. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming addition u/s 68 of the Act of Rs.49,62,507/- on account of increase in capital under the head 'by self-account'. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in confirming and invoking S 115BBE, as the provisions of Section 115BBE of the Act had no application to the factual matrix of the case. 9. The appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal. 3. The Ld. Counsel for the assessee at the outset did not press grounds of appeal No.4, 5 and 6 for which the Ld. DR has no objection. Accordingly, the said grounds are dismissed as ‘not pressed’. Ground of appeal No.9 being general in nature, is also dismissed. 4. So far as the grounds of appeal No.1 and 2 are concerned, these relate to the order of the Ld. CIT(A) in confirming the addition of Rs.18,21,792/- made by the Assessing Officer u/s 69 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) being the excess stock found during the course of survey and sustaining the addition of Rs.16,31,913/- being GP on suppressed sales found during the course of survey. 3 ITA No.1312/PUN/2024 5. Facts of the case, in brief, are that the assessee is an individual and engaged in business of milk and milk products. He filed his return of income on 02.01.2020 declaring total income of Rs.17,99,290/-. A survey action u/s 133A of the Act was conducted in the case of the assessee on 20.02.2020 during which a red colour note book, which is having sales figures for the period from 01.01.2020 to 20.02.2020, was found. The assessee did not produce the accounts books at the time of survey on the ground that he was not in a position to readily produce the same. Therefore, the authorized officer of the survey team summed up the total sales recorded in the red colour book for the above period and found that the total of such sales came to Rs.33,04,970/- for 51 days. The assessee had also confirmed the correctness of the nature of the entries in his statement recorded u/s 131 of the Act during the course of survey. Since the assessee was not in a position to produce the books of account, the authorized officer estimated the average monthly sales at 20 lakh and estimated the turnover for the year at Rs.2.40 crore. The assessee had also submitted the tentative trading account for the period from 01.04.2019 to 20.02.2020 in support of the correctness of his financial statements. On the basis of tentative trading account filed by the assessee the difference in sales was worked out to Rs.90,66,185/-. Applying the GP rate of 18% shown by the assessee, addition of Rs.16,31,913/- was made by the Assessing Officer in the order passed u/s 143(3) of the Act by invoking the provisions of section 68 of the Act. Similarly, survey team had also inventorized the stock found as on the date of survey and valued the stock with the help of the assessee which comes to Rs.22,40,052/-. When this was compared with the closing stock as per tentative 4 ITA No.1312/PUN/2024 trading account which is at Rs.4,18,260/-, a difference of Rs.18,21,792/- was found. Since the assessee had confirmed the excess stock found but could not explain the excess stock, he agreed to offer the same as additional income over and above his regular business income. The Assessing Officer in the order passed u/s 143(3) of the Act brought to tax the same u/s 69 r.w.s. 115BBE of the Act. 6. In appeal, the Ld. CIT(A) sustained the above two additions. 7. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. 8. The Ld. Counsel for the assessee at the outset submitted that although the assessee had admitted the excess stock of Rs.18,21,792/- and the GP of Rs.16,31,913/-, the benefit of telescoping should be given. Further, the amount cannot be added by invoking the provisions of section 69 r.w.s. 115BBE of the Act but should be taxed at normal rates. For the above proposition, he relied on the decision of the Coordinate Bench of the Tribunal in the case of Yash Construction Co. vs. ACIT vide ITA Nos.676 & 677/PUN/2024, for assessment years 2017-18 and 2018-19, order dated 31.07.2024. 9. The Ld. DR on the other hand supported the orders of the Assessing Officer and the Ld. CIT(A). 5 ITA No.1312/PUN/2024 10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that on the basis of incriminating documents found during the course of survey and in absence of production of books of account, the survey team determined the excess stock found at the time of survey amounting to Rs.18,21,792/-. Similarly, by extrapolating the sales of the assessee on the basis of entries found in the red colour book for a period of 51 days the survey team made the addition on account of suppressed GP at Rs.16,31,913/-. Since the addition on account of suppressed GP was made by extrapolating the sales figure and the excess stock found during the survey, therefore, we find merit in the submission of the Ld. Counsel for the assessee that the benefit of telescoping should be given. We, therefore, modify the order of the Ld. CIT(A) and direct the Assessing Officer to restrict the addition to Rs.1,89,879/- being the difference between the excess stock of Rs.18,21,792/- and the suppressed GP of Rs.16,31,913/-. 11. Further, we find the Coordinate Benches of the Tribunal are taking the consistent view that the excess stock found during the course of survey should be taxed as business income at normal rate. The Coordinate Pune Bench of the Tribunal in the case of Yash Construction Co. vs. ACIT (supra) has taken the view holding that the excess stock found during the course of survey should be treated as business income to be taxed at normal rate. We, therefore, set aside the order of the Ld. CIT(A) on this issue and direct the Assessing Officer to tax the amount of 6 ITA No.1312/PUN/2024 Rs.1,89,879/- at normal rate instead of u/s 69 r.w.s. 115BBE of the Act. The ground Nos.1 and 2 are accordingly partly allowed. 12. Ground No.3 relates to the order of the Ld. CIT(A) confirming the addition of Rs.70,11,472/- made by the Assessing Officer u/s 68 of the Act. 13. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the tax auditor in the tax audit report has provided the particulars of each specified sum which is taken as unsecured loan during the year as per column No.31(b) of the audit report. The details of the same are as under: Sr. No. Name of the person from whom specified sum is received Amount of specified sum taken or accepted. 1 Kapil Mohan Chougule Rs.6,00,000/- 2 Kapil Mohan Chougule Rs.8,00,000/- 3 Kapil Mohan Chougule Rs.21,95,000/- 4 Kapil Mohan Chougule Rs.23,893/- 5 Kapil Mohan Chougule Rs.4,76,107/- 6 Kapil Mohan Chougule Rs.2,50,000/- 7 Pandurang Lagu Rs.2,00,000/- 8 Pandurang Lagu Rs.1,00,000/- 9 Pandurang Lagu Rs.1,88,639/- 10 Pandurang Lagu Rs.45,833/- 11 Sou. Manisha Mohan Chougule Rs.4,50,000/- 12 Sou. Manisha Mohan Chougule Rs.2,00,000/- 13 Koustubh Mohan Chougule Rs.5,00,000/- 14 Koustubh Mohan Chougule Rs.5,00,000/- 15 Mohan Dadu Chougule (HUF) Rs.1,44,000/- 16 Sou. Manisha Mohan Chougule Rs.38,000/- 17 Sunil Hambirao Shelar Rs.1,50,000/- 18 Sunil Hambirao Shelar Rs.1,50,000/- Total Rs.70,11,472/- 7 ITA No.1312/PUN/2024 14. During the course of assessment proceedings the Assessing Officer asked the assessee to prove the identity and creditworthiness of the above parties and genuineness of the transactions. In response to the same, the assessee stated that he had provided the PAN numbers to prove their identity and the bank accounts of the assessee to prove the genuineness of the transactions. However, in absence of production of the persons or their confirmation letters or bank statements of the above persons, the Assessing Officer held that the assessee could not prove the creditworthiness of the said persons. He, therefore, invoking the provisions of section 68 r.w.s. 115BBE of the Act made addition of Rs.70,11,472/-. 15. In appeal the Ld. CIT(A) confirmed the above addition by observing as under: “28. I have considered the facts of the case and the submissions filed by the appellant. There is no dispute on the fact that the assessee has taken fresh loans from the persons stated in the assessment order. It is also not in dispute that except the PAN numbers, no other document such as confirmations from the loan creditors, copy of bank statement of loan creditors, copies of ITRs filed by loan creditors was ever filed before the assessing officer. Before me, the appellant has filed copies of some bank statements of loan creditors without explaining as to why the same were not filed before the assessing officer. The situations under which, additional evidence can be admitted by the CIT(A) has been laid down in Rule 48A of the Act. The appellant has neither filed any application under Rule 46A of the Act nor has explained as to why the said evidences (bank statements) were not filed before the AO and how his case is covered by the provisions of Rule 46A of the Act. In view of these facts, the copies of bank statements of some of the loan creditors cannot be admitted by the undersigned. 29. In any case, the status of filing of ITR, bank statement, copies of ITR, etc of the loan creditors as on date is as under Name Amount of Loan Confirmation Copy of ITR Copy of bank statement Kapil Mohan Chougule 43,45,000 Not filed Not filed Part bank statement filed during the appeal 8 ITA No.1312/PUN/2024 proceedings. The source of payments made is clear not clear. Pandurang Lagu 5,34,472 Not filed Not filed Part bank statement filed during the appeal proceedings. The source of payments made is not clear Sou Manisha Mohan Chougule 6,88,000 Not filed Not filed Part bank statement filed during the appeal proceedings. There is cash deposit just before the payment to the appellant Koustubh Mohan Chougule 10,00,000 Not filed Not filed Part bank statement filed during the appeal proceedings. The source of payments made is not clear Mohan Dagdu Chougule (HUF) 1,44,000 Not filed Not filed No bank statement filed Sunil Hambirao Shelar 3,00,000 Not filed Not filed bank statement filed during the appeal proceedings. There is a cash deposit of Rs. 2,00,000/- just before the payment appellant. 30. It is a well settled legal position that onus of proving the source of money found to have been received by an assessee is on him. If the assessee has failed to satisfactorily explain these credits, it is open for the revenue to hold that the sum credited, is income of the assessee and no further burden lies on the revenue. For this proposition reliance is placed on the decision of Hon. Supreme Court in the case of Roshan Di Hatti vs CIT 107 ITR 938 (SC) and Kale Khan Mohammad Hanif vs CIT 50 ITR 1 (SC). 9 ITA No.1312/PUN/2024 31. It is also a well settled legal position that in order to discharge his onus, the assessee must prove the identity of creditors, capacity of creditors to advance money and genuineness of transaction. Once the assessee has discharged his primary onus by submitting supporting documents for above three ingredients, then only burden shifts to the department. For this proposition the reliance is placed on following decisions: * Shankar Industries vs CIT 114 ITR 689 (Calcutta) * Harichand Virender Paul vs CIT 140 ITR 148 (P&H HC) * CIT vs Biju Patnaik 160 ITR 674 (SC) * CIT vs Precision Finance Pvt. Ltd. 208 ITR 465 (Calcutta) * Dhanlaxmi Steel Re-rolling Mills vs CIT 228 ITR 780 (AP) * Sanil K. M. P. vs CIT 177 Taxman 481 (Kerela) 32. The facts of the present case clearly suggest that the appellant has failed to discharge its primary onus of proving the capacity of creditors to advance money and genuineness of transaction. Therefore, considering the ratio laid down by various case laws as mentioned above it is held that the appellant has failed to satisfactorily explain the unsecured loans amounting to Rs.70,11,472/- received during the year. Accordingly, the addition of Rs.70,11,472/- made by the Assessing Officer as per the provisions of sec.68 of the Act is upheld. The relevant grounds raised by the appellant are DISMISSED.” 16. The Ld. Counsel for the assessee at the outset submitted that the assessee had given the bank statements and confirmation letters but inadvertently could not furnish the copies of income tax returns and balance sheets. Referring to page 63 of the paper book, he drew the attention of the Bench to the same which gives the details of various documents and which are as under: Details of Unsecured loans Name PAN Amount Remark Documents Kapil Mohan Chougule BDQPC7050L 43,45,000 Loan reflected in Balance sheet of Kapil Chougale. Source of loan given is sale proceeds of land and accumulated income Confirmation letter Ledger Account Confirmation Acknowledgement of Return Balance Sheet Profit and loss ac Computation Index of sale of land 10 ITA No.1312/PUN/2024 17. He submitted that the returns of the loan creditors were filed much prior to the completion of the assessment by the Assessing Officer on 12.02.2022. Referring to page 66 of the paper book, he submitted that Shri Kapil Mohan Chaugula has filed his return of income on 10.02.2021 which is much prior to the date of completion of the assessment. He submitted that in other cases, the returns were filed prior to the completion of assessment. Further, most of the loans were taken from the close family members. He submitted that given an opportunity, the assessee is in a position to substantiate his case by filing the requisite details to the satisfaction of the Assessing Officer. Pandurang Chintamani Lagu AAKPL6732E 534472 Loan given out of my income and amount received from son Mukund Lagu who is employed in Sweedan transferred amount through bank Amount Rs.188639 and 45833 returned in the same year and remaining amount is also repaid. Confirmation letter Ledger Account Confirmation Acknowledgment of Return Bank Statements Manisha Mohan Chougule AGPPC8686C 6,88,000 Loan given out of my business income from Dairy. The amount is repaid Confirmation letter Ledger Account Confirmation Acknowledgement of Return Balance Sheet Profit and loss ac Computation Koustubh Mohan Chougule CCOPC1954M 10,00,000 Loan given out of sale proceeds of land Confirmation letter Acknowledgement of Return Balance Sheet Profit and loss ac Computation Index of sale of land Sunil Shelar IBKPS1104Q 300000 Loan given out of loan taken on property. The loan amount is repaid. Confirmation letter Ledger Account Confirmation Bank Statements Mohan Chougale HUF AAOHM4691K 144000 Loan given out of bank balance. Also the loan amount is repaid Confirmation letter Bank Statement 11 ITA No.1312/PUN/2024 18. The Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) and submitted that for allowing the cash credit / unsecured loan, the assessee has to prove the identity and creditworthiness of the loan creditors and genuineness of the transactions. The assessee in the instant case has failed to prove the creditworthiness of the concerned loan creditors, therefore, the order of the Ld. CIT(A) should be upheld. 19. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the Ld. CIT(A) did not accept the copies of bank statements of some of the loan creditors on the ground that the assessee could not explain the reasons for not filing the same before the Assessing Officer. It is an admitted fact that the assessee has taken unsecured loans to the tune of Rs.70,11,472/- during the year. As per the provisions of section 68 of the Act, for accepting any cash credit the onus always lies on the assessee to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions. In the instant case the assessee filed certain details before the Assessing Officer which were not sufficient to accept the creditworthiness of the loan creditors. Although the assessee has filed the bank statements of some of the loan creditors before the Ld. CIT(A), he did not accept the same on the ground that the assessee could not explain the reasons as to why the same were not filed before the Assessing Officer and the filing of those documents are not in accordance with Rule 46A of the Income Tax 12 ITA No.1312/PUN/2024 Rules, 1962. It is the submission of the Ld. Counsel for the assessee that the loan creditors have declared such loan amounts in their respective Balance Sheets which were filed along with the returns of income prior to the completion of the assessment. It is also his submission that given an opportunity, the assessee is in a position to substantiate his case with evidence to the satisfaction of the Assessing Officer regarding the identity and creditworthiness of the loan creditors and genuineness of the transactions. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee for proving the identity and creditworthiness of the loan creditors and genuineness of the transactions and decide the issue as per fact and law. We hold and direct accordingly. The ground No.3 raised by the assessee on this issue is accordingly allowed for statistical purposes. 20. Ground No.7 relates to the order of the Ld. CIT(A) in confirming the addition of Rs.49,62,507/- made by the Assessing Officer u/s 68 of the Act on account of increase in capital. 21. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings while going through the capital account of the assessee noted that the assessee has increased his capital of Rs.49,62,507/- under the head ‘by self account’. He therefore, asked the assessee to explain the nature of such credits. In absence of any reply given by the assessee on this issue, the Assessing 13 ITA No.1312/PUN/2024 Officer made addition of Rs.49,62,507/- by invoking the provisions of section 68 r.w.s. 115BBE of the Act. 22. In appeal, the Ld. CIT(A) confirmed the addition made by the Assessing Officer by observing as under: “41. I have considered the facts of the case and the submissions made by the appellant. As per assessment order, the appellant has increased his capital by Rs.49,62,507/- under the head 'by self-account’. When asked, the assessee could not file any submission before the assessing officer. The AO accordingly made addition u/s 68 of the Act. A perusal of the reply filed before me suggests that the appellant has made a general submission without specifically explaining the source of said increase in his capital. Although, the appellant has submitted that the said increase was on account of funds provided by his relatives/friends, however, no details of these relatives/friends have been furnished. It is a well settled legal position that primary onus for explaining any credit entry in his books, is on the assessee and in the absence of same, the amount credited, is liable to be added u/s 68 of the Act. In the present case, the appellant has failed to discharge this onus u/s 68 of the Act. In the absence of any specific explanation regarding the source of such increase in his capital, the addition of Rs.49,02,507/- made by the assessing officer is upheld. The ground raised by the appellant is DISMISSED.” 23. The Ld. Counsel for the assessee referring to page 37 of the paper book submitted that the assessee has introduced the capital by obtaining this amount from various close relatives who had given the same to the assessee out of love and affection for betterment of his business. Referring to page 101 of the paper book, he drew the attention of the Bench to the same and submitted that the same reflects the details of amount of Rs.49,62,507/-. He submitted that an amount of Rs.28,30,000/- is the opening balance. He submitted that these details could not be produced before the Assessing Officer or the Ld. CIT(A). Therefore, given an opportunity, the assessee is in a position to substantiate his case by filing the 14 ITA No.1312/PUN/2024 requisite details before the Assessing Officer since all these details are already reflected in the books of account. 24. The Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) on this issue. 25. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that due to non submission of any details before the Assessing Officer regarding the details of increase in the capital by Rs.49,62,507/-, the Assessing Officer made addition of the same. We find in absence of any valid explanation, the Ld. CIT(A) also dismissed the ground raised by the assessee, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the introduction of capital by the assessee is out of the funds given by close relations for betterment of the business, the details of which are already available in the cash book of the assessee. Further, an amount of Rs.28,30,000/- is the opening capital. It is also his submission that given an opportunity, the assessee is in a position to furnish the full details before the Assessing Officer. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee to substantiate his case by furnishing all the details and decide the issue as 15 ITA No.1312/PUN/2024 per fact and law. We hold and direct accordingly. The ground No.7 raised by the assessee on this issue is accordingly allowed for statistical purposes. 26. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 12th June, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 12th June, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune 16 ITA No.1312/PUN/2024 S.No. Details Date Initials Designation 1 Draft dictated on 02.06.2025 Sr. PS/PS 2 Draft placed before author 02.06.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "