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TMI Blog2013 (11) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... t - Commission amount has been claimed to have been paid by way of cash and hence provisions of sec. 40A(3) of the Act also get violated - Impugned commission expense is liable to be disallowed for more than one reason. Cash credit u/s 68 of the Income Tax Act - Cross examination of the person on whose statement the loan has been added as income of the assessee – Held that:- Assessee company itself has offered the impugned cash credit of Rs.14.50 lakhs as its income after the statement given by Shri Prabhakaran, which means that the assessee company has accepted the statement given by Shri Prabhakaran. Hence, the plea raised about cross examination at the appellate stage is clearly an after though and lacks credence - It is well settled proposition that the assessee is required to prove the three main ingredients in respect of the cash credit viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transaction. In the instant case, the creditor is the Managing director of the assessee company. With regard to the sources for making a loan of Rs.14.50 lakhs to the assessee, the Managing director claimed that he had received a loan of id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs passed by the Ld. CIT(A)-II, Kochi and they relate to the assessment year 2002-03. The appeal numbered as 138/Coch/2009 relates to quantum assessment and the other appeal relates to penalty levied u/s. 271(1)(c) of the Act. 2. We shall first take up the appeal filed by the assessee against the order passed by Ld CIT(A) on the quantum assessment. The following issues are urged in this appeal: (a) Disallowance of commission expenses Rs. 6,38,217/-. (b) Disallowance of Transportation overseas charges Rs.14,36,000/- (c) Addition of the difference in SBT Packing credit balance Rs. 5,26,193/-. (c) Addition of cash credit u/s. 68 of the Act Rs. 14,50,000/-. At the time of hearing, the Ground relating to the addition of Rs. 14,36,000/- pertaining to transportation overseas charges was not pressed by the Ld. Counsel for the assessee and hence the same is dismissed as not pressed. 3. The facts relating to the case are stated in brief. The assessee-company is engaged in the business of exporting tea dust. The assessee filed its return of income for the year under consideration belatedly, that too beyond the time allowed under the provisions of section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer disallowed the claim of commission expenses of Rs. 6,38,217/-. The Ld. CIT(A) also confirmed the said disallowance. 5. The Ld. Counsel for the assessee contended that the provisions of sec. 195 of the Act shall not apply to the facts of the instant case as the said payment is not taxable in the hands of the foreign national. On the contrary, the Ld. DR submitted that the impugned disallowance was made not only on account of non deduction of tax at source but also on account of the failure of the assessee to prove the genuineness of the commission expenditure. 6. We have heard the rival contentions and perused the record. With regard to the claim of commission payment, admittedly, the assessee could furnish only a copy of the receipt signed by the foreign national, Shri Ahmed Taha. The Assessing Officer has pointed out that there were discrepancies not only with regard to the amount of commission and but also with regard to the period for which the commission was claimed to have been paid. In addition to the above, the assessee has furnished the details of cash withdrawn by it from a bank on 07-02-2004 to the tune of Rs.7,50,000/-. However, we notice that the commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer noticed that in the Balance sheet of the company, an amount of Rs. 76,11,817/- was shown as liability towards SBT Packing Credit as on 31-03-2002. However, the bank statement disclosed a balance of Rs. 70,85,624/- only. Since the assessee could not reconcile the difference of Rs.5,26,193/-, the Assessing Officer added the above said difference amount to the income of the assessee as non-existent liability. The Ld CIT(A) also confirmed the said disallowance. 8. Before us, the ld Counsel submitted that the assessee was maintaining two accounts with State Bank of Travancore and the closing balances of both the bank accounts were clubbed together for the purpose of preparing the Balance sheet. In this regard, the Ld A.R invited our attention to the copies of bank accounts placed in pages 29 to 32 of the paper book filed before us. We notice that the bank account titled as SBT- Packing credit is showing a balance of Rs.70,85,624/- as on 31.3.2002 and another bank account titled as State Bank of Travancore is showing a balance of Rs.5,26,193.90 as on that date. The explanation of the Ld A.R that the assessee had clubbed the balances available in both the bank accounts for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate an embarrassment to his family and as advised by he AO, he was compelled to agree for the addition. (d) Merely because the assessee has offered the income, the same does not become taxable as per I.T. Act. Further the admission of income was erroneous and therefore, it is not binding on the assessee. Merely because the creditor failed to prove the source of credit, the same cannot be added to the income of the assessee. It ought to have been added in the hands of the creditor. When the creditor has denied the credit, the Assessing Officer is duty bound to give an opportunity to the assessee to cross examine the creditor which has not been done. Therefore, the addition of Rs.14,50,000/- is liable to be deleted. Reliance is placed on the following decisions:- (i) Control Touch Electronics (P) Ltd Vs. ACIT (2001) (77 ITD 522) (Pune) (ii) Asheesh Securities Ltd Vs. DCIT (297 ITR 322) (Delhi) (iii) Stellar Investments Vs. ITO (2001)(251 ITR 263)(SC) (iv) CIT Vs. Smt. P.K. Nurjahan (237 ITR 570 (SC) 11. However, the contentions made before Ld CIT(A) was not convincing to the first appellate authority and hence he confirmed the addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and confirm the addition of Rs. 1450000/- .(Para 4.3 4.4 of CIT(A)). 12. Before us also, the Ld A.R contended that the addition of Rs.14.50 lakhs was made by the AO without giving an opportunity to cross examine Mr. Prabhakaran. It was further contended that the addition, if any, should have been made in the hands of Shri V. Sasidharan, since Mr. Prabhakaran did not have any transaction with the assessee company. On the contrary, the Ld D.R submitted that the assessee company itself has offered the impugned amount of Rs.14.50 lakhs as its income during the course of assessment proceeding. 13. We have heard the rival contentions on this issue and carefully perused the record. We notice that the assessee company itself has offered the impugned cash credit of Rs.14.50 lakhs as its income after the statement given by Shri Prabhakaran, which means that the assessee company has accepted the statement given by Shri Prabhakaran. Hence, the plea raised about cross examination at the appellate stage is clearly an after though and lacks credence. Further, the assessee has failed to furnish any credible explanation which compelled it to offer the above said amount erroneously. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said addition was confirmed on account of three reasons viz., (a) the assessee has failed to prove the payment of commission with adequate evidences (b) the assessee has failed to deduct tax at source u/s 195 of the Act inviting disallowance u/s 40(a)(i) of the Act and (c) the assessee has paid the amount in cash in violation of sec. 40A(3) of the Act. The second and third reasons are technical reasons and hence they do not give rise to any penalty. With regard to the first reason, the submissions made by the assessee was that it paid the amount in cash to its agent named Mr. Ahmed Taha in India during his visit to Cochin. It was further submitted that the amount of Rs.6,38,217/- represented not only the commission amount, but also the expenses incurred by the assessee company during his stay in India. It may be noted that Mr. Ahmed Taha has acknowledged the receipt of commission amount to the tune of Rs.5,70,000/- only and it was in variance to the amount booked by the assessee. Hence, the assessee has attempted to explain the difference between the two figures by stating that the difference between the two amounts represents expenses incurred by the assessee company on the visit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrict the quantum of penalty to minimum amount of tax sought to be evaded. The order of Ld CIT(A) stands modified accordingly. 19. With regard to the assessment of cash credit of Rs.14,50,000/-, we notice that the Ld CIT(A) has confirmed the penalty relating to the same on the ground that the assessment of the same was confirmed by him in the quantum appellate proceedings. However, the explanation of the assessee was that the above said loan amount was received from the Managing Director and the same was also repaid subsequently. In the quantum proceedings, it was contended that the assessee was constrained to offer the above said loan amount under peculiar circumstances and accordingly it was contended that the addition should not be made merely on the basis of voluntary offer. However, the said addition was confirmed as the assessee could not prove the source in the hands of the creditor, i.e., the claim of the creditor that he had obtained loan from a person named Mr. Prabhakaran for advancing money to the assessee company was proved to be not correct or not substantiated. However, the contention of the assessee was that it was not allowed the opportunity of cross examining ..... X X X X Extracts X X X X X X X X Extracts X X X X
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