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TMI Blog2018 (2) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... ness which had come into existence and therefore, proportionate interest relating to the period before start of machinery was an allowable expense. Addition on account of sundry creditors consisting of three parties - Held that:- Assessing Officer during remand proceedings had accepted the explanation in respect of two creditors for which necessary confirmations were filed and in respect of one creditor amounting to ₹ 1,61,885/- he has not accepted the same as the necessary confirmation was not filed and therefore, he had recommended the addition to the extent of ₹ 1,61,885/- only. However, learned CIT(A) has deleted the same also by relying on certain case laws which states that addition of sundry creditors cannot be made u/s 68 of the Act. Revenue appeal dismissed. - ITA No. 232/Lkw/2016 - - - Dated:- 9-1-2018 - Shri T. S. Kapoor, Accountant Member And Shri Partha Sarathi Chaudhury, Judicial Member Appellant by : Shri Shishir Bajpai, C. A. Respondent by : Smt. Alka Singh, D.R. ORDER Per T. S. Kapoor, A. M. This is an appeal filed by the Revenue against the order of CIT(A) dated 22/02/2016. In this appeal the Revenue has taken the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that Assessing Officer had made additions on account of capital introduced by the firm as well as on account of unsecured loans introduced by the firm. The necessary evidences were filed and our attention was invited to copy of remand report placed at pages 5 to 19 of the paper book and he heavily placed his reliance on the order of the CIT(A) as regards ground No. 1 to 3 are concerned. 3.1 As regards ground No. 4, Learned A. R. submitted that assessee was already working as manufacturing unit and had installed a new machinery for which the Assessing Officer had disallowed interest as preoperative expenses which the CIT(A) has rightly held that in an existing unit, installation of new machinery cannot tantamount to setting up of a new unit and therefore, has rightly deleted the addition. 3.2 As regards ground No. 5 regarding deletion of unexplained sundry creditors, Learned A. R. submitted that during remand proceedings, out of three creditors, two creditors had filed the confirmations and therefore, CIT(A) has rightly deleted the addition. In respect of third addition amounting to ₹ 1,61,885/-, Learned A. R. submitted that the assessee had purchased some part of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en contributed on 11.07.2006, ₹ 1,00,000/- has been contrived on 27.07.2006 and ₹ 2,00,000/- has been contributed on 20.10.2006. It has been stated by assessee that the funds were provided by him out of withdrawal from his SB account No.028000105407105 with Punjab National Bank and SB account No. 11106314020 with State Bank of India. With regard to amount of ₹ 1,00,000/- deposited on 04.04.2006, it has been explained that this amount was withdrawn from firm on 30.03.2006 and has been introduced again on 04.04.2006. The reply of assessee is not acceptable because if the amount was to be introduced in the firm as capital, it should not have been withdrawn. There is apparently no justification for its withdrawal and subsequent deposit within 5 days. As such the amount of ₹ 1,00,000/- is treated as unexplained cash credit in the books of accounts of assessee and is added to its total income u/s 68 of the I.T. Act 1961. Regarding rest of entries it is explained that the amount is out of .withdrawal from bank account. Explanation of credit entries out of which the amount has been provided to firm has also been provided. It is however seen that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments in respect of amount of ₹ 8,00,000/- credited on 21.03.2007 has been provided by the assessee or partner. As such the amount of ₹ 8,00,000/- is treated as unexplained cash credit in the books of accounts of assessee and is added to its total income u/s 68 of the I.T. Act 1961. Since the above amount of ₹ 8,00,000/- introduced as capital on 21.03.2007 has been treated as unexplained, therefore the proportionate interest on capital amounting to ₹ 2,893/- is also disallowed and added to the total income of assessee. v. Smt. Anju Gupta:- The opening balance of capital is ₹ 5,03,576/-and thereafter ₹ 5,00,000/- has been contributed on 13.06.2006, ₹ 4,50,000/- has been contributed on 21.07.2006, ₹ 6,00,000/- has been contributed on 03.08.2006 and ₹ 1,00,000/- has been contributed on 22.08.2006. It has been stated by assessee that the funds were provided by her out of withdrawal from her SB account No. 11106277188 with State Bank of India, Lakhimpur Kheri. The total amount introduced by her is ₹ 16,50,000/-. Regarding ₹ 7,00,000/- out of it, it has been explained that this was loan taken from Sri Kan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m on 14.08.2006 which has been returned to partner on 17.08.2006. Subsequently ₹ 2,00,000/- has again been deposited on 23.08.2006. In the bank account of Smt. Shikha Gupta also credit entry of ₹ 2,00,000/- is seen on 14.08.2006 which has been explained as loan taken from Sri Pankaj Mittal. His confirmation has also been provided. However, another credit entry of ₹ 2,00,000/- is seen in the bank account on 23.08.2006 for which no explanation or details/documents have been provided. This amount of ₹ 2,00,000/- has been introduced as capital in the firm and has remained unexplained. Accordingly this amount of ₹ 2,00,000/- is treated as unexplained cash credit entry in the books of assessee and is added to its total income u/s 68 of the I.T. Act 1961. Since the above amount of ₹ 2,00,000/- introduced as capital on 23.08.2006 has been treated as unexplained, therefore the proportionate interest on capital amounting to ₹ 14,729/- is also disallowed and added to the total income of assessee. viii. Smt. Shahi Gupta:- The opening balance of capital is ₹ 95,296/- and thereafter ₹ 10,00,000/- has been contributed on 15.05.2006 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan to M/s Bajrang Sugar Industries. In this regard assessee had submitted copy of account of Shri Surendra Kumar in the books of M/s Bajrang Sugar Industries during the assessment proceedings for verification, but had failed to produce copy of bank account of M/s Bajrang Sugar Industries for cross verification. Now the assessee has submitted complete copy of bank statement and relevant entries are reflected in the account. Further in his reply Shri Surendra Gupta had stated that ₹ 1,00,000/- was withdrawn from firm which was introduced as a capital and again deposited in firm. The statement of the Shri Surendra Kumar is not convincing regarding ₹ 1,00,000/- since, the amount was to be introduced in the firm as a capital, it should not have been withdrawn. The AO had rightly added ₹ 1,00,000/- unexplained cash credit u/s 68 of the I.T. Act 1961. iii. Smt. Vimla Devi:- During the assessment proceedings the AO had added ₹ 6,00,000/- as unexplained capital of the assessee and charge interest of ₹ 2170/- on the unexplained capital. Now assessee has submitted its reply before CIT(A) as well as AO and stating that ₹ 6,00,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 13,00,000/- as unexplained capital of the assessee and charge interest of ₹ 1,40,777/- on the unexplained capital. Now assessee has submitted his reply before CIT(A) as well as AO and stated that cash amount of ₹ 10,00,000/- was withdrawn from firm M/s Jajrang Sugar Industries in which Shri Ravindra Nath Gupta is a partner. In this regard assessee had submitted copy of account of Sri Ravindra Nath Gupta in the books of M/s Bajrahg Sugar Industries during the assessment proceedings for verification, but had failed to produced copy of bank account of M/s Bajrang Sugar Industries for'cross verification at the time of assessment. Now the assessee has submitted complete copy of bank statement for verification. Further assessee has stated in its submission before the appellate authority that Shri Ravindra Nath Gupta had taken loan amounting to ₹ 3,00,000/- from his friends Shri Hemant Singh, Shri Mangal Singh and Shri Gurdeep Singh. On verification of bank statement of Shri Ravindra Nath Gupta it is found that only one cheque bearing serial no.S033004, amounting to ₹ 3,00,000/- was deposited on 05.08.2006 and same was transferred to Narain Sugar In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bank account of Smt. Shalu Gupta. In the support of the contention a copy of bank account no.01190020310 was also submitted at the time of assessment proceeding. The AO had rightly added ₹ 2,00,000/- due to the assessee had failed to provide explanation or details/Documents in respect of amount of ₹ 2,00,000/- credited in bank account of Shalu Gupta. The details have not been submitted before the Appellate Authority as well as AO. Hence the . submission of the assessee in this regard have no merit and are liable to be rejected. In this remand report the Assessing Officer had mostly accepted the contention of the assessee and therefore the CIT(A) has rightly deleted the additions. However, in respect of Shri Surendra Kumar the Assessing Officer has not accepted the contention of assessee that the amount of ₹ 1,00,000/- was reintroduced in the firm after withdrawing from the firm in the earlier year. However, the CIT(A) on a rejoinder from the assessee has accepted the contention of assessee for this amount also by holding as under: The appellant explained during appellate proceedings that the amount of ₹ 5,00,000/- was withdrawn from M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen on 14.08.2006 was explained as loan taken from Shri Pankaj Mittal. However another credit entry of ₹ 2,00,000/- was seen in the bank account on 23.08.2006 for which no explanation was provided. I find that the AO has failed to appreciate that the cheque deposited on 14.08.2006 bounced and the same was again credited on 23.08.2006. In view of the aforesaid explanation furnished by the appellant the additions of ₹ 2,00,000/- proportionate disallowance of ₹ 14,729/- on account of interest does not survive. In the case of Smt. Salu Gupta, the Assessing Officer during remand proceedings accepted the claim of capital to the extent of ₹ 10,00,000/- however, recommended the addition for ₹ 2,00,000/- which again the CIT(A) deleted by making a finding of fact that the amount of ₹ 2,00,000/- was also raised as loan from M/s Bajrang Sugar Industries. The relevant findings of CIT(A) are reproduced below: 4(6)(viii) Smt. Shalu Gupta made a contribution of ₹ 10,00,000/- on 15.05.2006 and ₹ 2,00,000/- on 21.03.2007 out of withdrawal from her account No.01190020310 with State Bank of India, Lakhimpur Kheri. The amounts were treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - 4 Siddhartha Gupta 2,75,612/- 2,50,000/- 28,521/- 5 Vipul Jain 2,17,655/- 2,00,000/- 19,660/- 6 Arvind Jain 1,50,000/- 1,50,000/- 7,126/- 7 . Vikas Jain 2,50,000/- 2,50,000/- 11,877/- 8 Rakesh Gupta 2,68,747/- 2,50,000/- 20,877/- 9 Yogesh Gandhi 2,10,097/- 2,00,000/- 11,244/- 10 Pradeep Mittal 3,15,145/- 3,00,000/- 16,866/- 11 Suresh Chandra Gupta 2,58,193/- 2,50,000/- 94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kas Jain but failed to provide the bank statement and other details. The appellant has also expressed its inability to provide further details. In absence of bank account the genuineness of transaction cannot be proved. In view thereof the unsecured loan of ₹ 2,50,000/- is not satisfactorily explained and therefore the addition of ₹ 2,50,000/- is confirmed. The AO is also justified in disallowing the corresponding interest of ₹ 11,877/- as the loan is not explained. 5(6)(it)(a) Shri Rakesh Gupta (S. No. 8) has given loan amounting to ₹ 2,50,000/- to the appellant on 21.07.2006. On verification of Bank statement of Shri Rakesh Gupta, it was seen that the available balance as on 07.06.2006 was ₹ 1,66,029/. Thereafter two cheques were deposited in this bank account amounting to ₹ 50,000/- and ₹ 57,000/- on 07.06.2006 and 07.07.2006 respectively. The amount of ₹ 1,07,000/- was explained to have been received from father. Shri Rakesh Gupta is stated to be retired teacher having pension income. The appellant has filed confirmation of the creditor whose PAN is AGAPG6603M. 5(6)(ii)(b) When the assessee has filed confirmations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,50,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of ₹ 20,877/- as the loan is explained. The appellant gets relief of ₹ 2,50,000/- and ₹ 20,8777-. 5(6)(iii)(a) Shri Yogesh Gandhi (S. No. 9) During the assessment proceeding the AO made additions of ₹ 2,00,000/- and proportionate disallowance of interest of ₹ 11,244/-because on verification of bank statement it was found that the creditor had deposited cash of ₹ 2,00,000/- on 12.10.2006 and the same was transferred to the appellant on next day i.e. 13.10.2006. Shri Yogesh Gandhi (PAN No. AGZPG0874B) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not accepted the loan as genuine for the sole reason that cash was deposited in the bank account of the creditor prior to issue of cheque. 5(6)(iii)(b) In the case of Dushiant Kumar vs. ITO {ITA No. 468/2014, Date of Pronouncement - 27.11.2015 } Hon'ble ITAT, Amritsar Bench held that it is not the responsibility of the assessee to prove the source of funds in the hands of lender so long as it produces the lender before the AO who confirm the fact o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account which was filed in appellate proceedings was ₹ 3212680 and the return of income showed total income of Rs. NIL due to brought forward losses of earlier years. M/S Shri Bajrang Sugar Industry is assessed to Tax with income Tax Officer, Barabanki vide PAN No. AADFS8786J and has confirmed having advanced loan on interest of 12% to the appellant. 5(6)(iv)(b) In the facts of the present case, it is a matter of record that the assessee has produced confirmation letters in respect of the creditor wherein not only the identity of the creditor with its address has been furnished but income tax particulars including PAN has also been given. Therefore, the identity of the creditor remains established. Also, it is evident, that the entire transaction has been through proper banking channel. Therefore, as far as the assessee is concerned, the genuineness of the transaction has been established as not only the transaction is through banking channel but the source of such credit has also been proved by the assessee. Now coming to the third ingredient, the creditworthiness of the creditor, it is to be noted that the creditor has not only confirmed of having advanced the money t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,126/- as the loan is explained. The appellant gets relief of ₹ 1,50,000/- and ₹ 7,126/-. 5(6)(vii) Shri Siddhartha Gupta (S. No. 4) During the assessment proceeding the AO made additions of ₹ 2,50,000/- and proportionate disallowance of interest of ₹ 28,521/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings the AO verified the bank account and found that the opening balance as on 01.04.2006 was ₹ 2,33,736/- and an amount of ₹ 28,000/- was received from his father, which was not satisfactorily proved by the creditor. I find that Shri Siddhartha Gupta (PAN No. AJRPG7002Q) has confirmed having given loan by cheque to the appellant on interest of 12%. In the case of Hastimal V. CIT (49 ITR 273)(Mad.) Tolaram Daga V. CIT (59 ITR 632)(Assam) Nemichand Kothari v. CIT (264 ITR 254) (Gau) it has been held that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of ₹ 2,50,000/- is satisfactorily explained and therefore the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 512) (Guj). Suffice it to state that an assessee can be asked to prove the source of credit in its books, but cannot be asked to prove the source of the source. In view thereof and relying on case authorities discussed supra the unsecured loan of ₹ 3,00,000/- is satisfactorily explained and therefore the addition of ₹ 3,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of ₹ 16,866/- as the loan is explained. The appellant gets relief of ₹ 3,00,000/- and ₹ 16,866/-. 5(6)(x) Shri Vijay Gupta (S. No. 17) During the assessment proceeding the AO made additions of ₹ 4,49,000/- and proportionate disallowance of interest of ₹ 17,024/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings on verification of bank statement it was found that the creditor had deposited cash of ₹ 4,00,000/- on 07.12.2006 and the same was transferred to the appellant on next day i.e. 08.12.2006. . I find that Shri Vijay Gupta (PAN No. AEYPG2910D) has confirmed having given loan by cheque to the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement in support of the claim. During remand proceedings on verification of bank statement it was found that the creditor had deposited cash of ₹ 3,00,000/- on 15.12.2006 and the same was transferred to the appellant on next day i.e. 16.12.2006. . I find that Shri Nitin Gupta (PAN No. AGAPG6607R) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of ₹ 3,00,000/- is satisfactorily explained and therefore the addition of ₹ 3,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of ₹ 10,553/- as the loan is explained. The appellant gets relief of ₹ 3,00,000/- and ₹ 10,553/-. 5(6)(xiii) Shri Krishna Mittal, HUF (S. No. 13) During the assessment proceeding the AO made additions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,321/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank statement in support of the claim. During remand proceedings on verification of bank statement it was found that the creditor had deposited cash of ₹ 1,00,000/- on 20.12.2006 and the same was transferred to the appellant on next day i.e. 21.12.2006. . I find that Shri Pankaj Mittal (PAN No. AHWPM7304C) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of ₹ 1,00,000/- is satisfactorily explained and therefore the addition of ₹ 1,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of ₹ 3,321/- as the loan is explained. The appellant gets relief of ₹ 1,00,000/- and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.03.2007 and the same was transferred to the appellant on next day i.e. 21.03.2007. I find that Smt. Prachi Gupta (PAN No. AHMPG5937F) has confirmed having given loan by cheque to the appellant on interest of 12%. The AO has not examined the creditor and has doubted the credit worthiness for the sole reason that cash has been deposited in the bank account before issue of cheque to the appellant. The case authorities discussed above cleanly lay down that the appellant is not expected to prove the source of source of credits. In view thereof and relying on case authorities discussed supra the unsecured loan of ₹ 1,00,000/- is satisfactorily explained and therefore the addition of ₹ 1,00,000/- is deleted. The AO is therefore not justified in disallowing the corresponding interest of ₹ 395/- as the loan is explained. The appellant gets relief of ₹ 1,00,000/- and ₹ 395/-. 5(6)(xix) Smt. Kumud Gupta (S. No. 23) During the assessment proceeding the AO made additions of ₹ 1,00,000/- and proportionate disallowance of interest of ₹ 395/- as creditworthiness of the lender was doubtful because the assessee had failed to provide copy of bank stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had come into existence and therefore, proportionate interest relating to the period before start of machinery was an allowable expense. The relevant findings of CIT(A), as contained in para 6(3) and 6(4), are reproduced below: 6(3) I have examined the facts and circumstances of the case. I have considered the findings of the AO in the assessment order and the submissions of the appellant. I have also considered the observations of the AO in the remand report and the comments of the appellant thereon. The appellant claimed interest of ₹ 5,44,288/- on term loan taken for purchase of Plant and Machinery. The machinery as per report of Inspector was put to use on 01.02.2007 whereas as per AO the production started on 19.02.2007. I find that the AO disallowed proportionate interest of ₹ 2,09,499/- for the period 01.02.2007 to 19.02.2007 without considering the fact that the interest was paid for the loan taken for a new plant and machinery installed in already running unit. It is not a case where a new business has come into existence rather a case of new plant and machinery (boiler) installed in an already existing business. 6(4) Hon'ble Supreme Court in Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has shown several sundry creditors. Notices u/s 133(6) of the IT. Act 1961 were issued those creditor whose closing balances at the year end were exceeding ₹ 1,00,000/- Only one out of four such creditors has replied to the notice u/s 133(6) issued from this office and has confirmed its transactions with the assessee.The remaining three creditors, as under have not furnished any reply- i. Shri Ganesh Bhandar ₹ 4,30,640/- ii. Inviro Solutions ₹ 37,33,402/- iii. India Engineering Works ₹ 1,61,885/- Total ₹ 43,25,930/- Even though the assessee has provided copies of account of the above creditors for this year as well as for the next year, it remains unsubstantiated by the concerned party. Accordingly the above amount of ₹ 43,25,930/- is disallowed and added to the total income of the assessee firm as unexplained liability. 7(2) The appellant has filed written submissions stating therein that the creditors added by the AO were balances on account of sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of such purchases has not been disputed, rather, the same has been accepted, the credits stand fully explained and no adverse inference is called for, either on facts and law. Further, in the case of Annamaria Travels and Tours (P) ltd Vs Deputy Commissioner of Income Tax, ITAT, Delhi 'F' Bench (2005) 95 TTJ 71 (Del), it has been held that Income - cash credit - Amount standing to the credit of sundry creditors for purchases of Airline Tickets - Addition made under section 68 on the ground that no confirmation was filed from airline companies - Not Justified - When payments to creditors were not doubted and commission income in respect of those very tickets has been assessed as income of assessee, amounts standing to the credits of airlines towards purchase of tickets could not be added under section 68. 7(5) In view of discussion above and finding that the supply of consumable stores or plant and machinery has not been doubted by the AO, the corresponding credits standing in the name of suppliers cannot be added to income under section 68 of the Act. The addition of ₹ 43,25,930/- made by the AO is deleted giving relief to the appellant. The ..... 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