9911796707
TMI Blog2012 (11) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... section 68 without properly appreciating the facts of the case as mentioned by the AO in the assessment order. 4. That the learned CIT(A) has erred in law and on facts in deleting the interest paid to the parties on the above amount of ₹ 8,50,000/- without properly appreciating the facts of the case. 5. That the appellant craves leave to add or delete or alter or modify any one or more ground(s) of appeal during the appellate proceedings. 6. That the order of the CIT(Appeals)-1, Agra being erroneous in law and on facts be set aside and that the order of the Assessing Officer be restored." 3. The brief facts of the case are that in this case the assessment has been completed under section 143(3) at an assessed income of ₹ 25,67,420/- as against the returned income of ₹ 4,84,370/-. This is a case of Construction Company that works for MES (defense establishment). During the course of assessment proceeding, the A.O. after detailed examination of the books of account produced by the assessee observed certain defects and deficiencies in the books of account as discussed from page ano.3 to 6 of the order dated 15.12.2006. In view of these defects and deficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l against the order of CIT(A) as submitted by the ld. Authorised Representative at the time of hearing before us. However, the Revenue challenged the order of CIT(A) vide ground Nos.1 & 2 against the relief granted to assessee by reducing net profit rate from 6.5% to 2%. 6. As retards disallowance of interest under section 40A(2)(a) ₹ 58,977/-, in principle the CIT(A) agreed with the A.O. for disallowance but the CIT(A) held that no separate addition is warranted as addition to the extend of ₹ 1,86,650/- has been sustained on account of profit which covers this addition also. 7. As regards adhoc disallowance out of mobile, vehicle expenses and depreciation totaling to ₹ 81,352/-, the CIT(A) held as under :- (Paragraph No.8.3 page no.32) "I do not agree with the ld. AR because in absence of log book or call register being maintained by the appellant firm and no separate vehicle provided to the partners of the firm for their personal use, it cannot be ruled out that they were using these facilities for their personal use. In view of the personal use of these facilities, the AO has disallowed 20% of these expenses, which in my view appears to be excessive. In my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81% 0.79% 1.69% 4.28% 4.06% 1.49% Returned income 1,56,880 34,920 1,79,050 1,86,590 72,730 3,84,520 Assessed income 1,73,028 u/s 143(3) 34,920 u/s143(1)(a) 1,79,050 u/s143(1)(a) 1,86,590 u/s143(1)(a) 72,730u/s143(1)(a) 3,84,520 u/s143(1)(a) 9. Making comparison of net profit for different year and after discussing various case laws the CIT(A) followed an order of Agra Bench in the case of A.R. Enterprise vs. I.T.O., ITA No.466/Agr/2007, order dated 05.08.2009, in which other considering facts and circumstances held that the rate of 2% would meet the interest of justice and no further deduction in the form of salaries and interest to partner on depreciation would be available to the assessee. Finally, the CIT(A) held as under :- (Page nos.20 & 21) "Looking to the past history of the appellant after providing deduction for salary and interest to the partners, net profit has never been more than 2% even after a scrutiny assessment was passed by the department for AY 98-99. For two years i.e. 01-02 & 02-03, though the net profit rate was about 4% but in those years, turnover are very nominal in lakhs only as compared to the turnover in the present year being 3.3 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grawal, Shri Atul Kumar (HUF), Shri Rajiv Kumar (HUF) and Smt. Suman Agarwal. As per copies of the account of respective depositors, it was also noticed that there was no sufficient amount in the respective bank accounts of the depositors to meet the cheque amount extended to the assessee-firm, and the amount in cash was also deposited before the withdrawal. The assessee vide note sheet entry dated 02-11-2006 was asked to produce the depositors to examine their creditworthiness and to get at the truth as well because primary onus rests with the assessee itself in this regard. In reply to this, the assessee has stated that the identity, capacity and genuineness of transactions is established by filing their confirmations, copies of bank accounts and acknowledgements of returns filed with the department. The loans have been received through cheques, therefore, the same can not be doubted. Some of the case laws were also relied upon and finally, it was stated that if required, the creditors may be summoned u/s 131 for examination. On the request of the assessee, statutory summons u/s 131 dated 15.11.2006 were issued to all the depositors fixing compliance date 22.11.2006 in the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to the assessee as stated above in assessment proceedings, yet the creditworthiness of the depositors' stands unproved, and the primary onus/burden rested with the assessee or lay upon it, has not been discharged. The depositors all through failed to attend for examinations while summoned u/s 131 on the request of the assessee. The matrix of the case is that deposits related to family members of the partners are no doubt through cheques but before drawing respective cheques there were no balances to meet the cheque amount and the cash was deposited in four to five occasions just before the loans advanced and the deposits in cash were with Oriental Bank of Commerce at Gwalior, whereas the depositors are resident of Mathura. The amounts deposited in cash prior to issue of cheques for loans were in-total almost the same as that of amount loaned or deposited with the assessee. The entire modus operandi or the device shows that the assessee-firm itself pumped its unaccounted money in the guise of so-called deposits by the family members and the total deposits i.e. ₹ 5,75,000/- (Rs.1,00,000/- in the case of Smt. Mamta Agrawal, ₹ 2,00,000/- Shri Atul Kumar (HUF), ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f I.T. Act to take the matter to logical conclusion, he simply resorted to making addition u/s 68 which does not appear to be justified in view of decision of Apex Court in the case of CIT vs. Orissa Corporation (P) Ltd. (supra). Therefore, on merit also addition u/s 68 of ₹ 8,25,000/- cannot be sustained. In view of these facts and circumstances on the merit as well as in law, I delete the addition of ₹ 8,25,000/- u/s 68 following the decision of jurisdictional High Court in the case of CIT vs. Raghavendra Pratap Singh (supra) and CIT vs. Jauharimal Goel (supra) ground no.5 is allowed." 16. Ld. Departmental Representative relied upon the order of A.O. and submitted that the CIT(A), without appreciating the facts noted by the A.O. in his order and remand report, deleted the addition. Ld. Departmental Representative has also relied upon the recent order of I.T.A.T. in the case of Smt. Suman Gupta vs. ITO in ITA No.454/Agr/2009, order dated 16.03.2012. The said order of I.T.A.T. has been confirmed by the Hon'ble High Court in Income Tax Appeal No.680 of 2012 vides judgement dated 07.08.2012. 17. The Ld. Authorised Representative, on the other hand, relied upon the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :" 22. As regards the issue whether addition under section 68 can be made after rejecting the books of accounts, we would like to refer a judgement of Hon'ble Supreme Court in the case of Commissioner of Income-tax vs. Devi Prasad Vishwanath, 72 ITR 194 (SC). The facts of that case are that during the proceedings for assessment for the assessment year 1946-47 the Income-tax Officer declined to rely upon the books of account of the assessee, and estimated the business profits of the assessee by applying a flat rate of 12½% to the turnover of the business. The Income-tax Officer also found in the books of account an entry dated January 15, 1945, of a deposit of ₹ 20,000 in the name of Messrs. Banshidhar Rawatmal of Ratangarh. The Income-tax Officer called upon the assessee to prove the nature and source of this deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealed against that order with a certificate granted by the High Court. 22.5 On the basis of above facts and circumstances the Apex Court held as under:- "There is nothing in law which prevents the Income-tax Officer in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Income-tax Act, after rejecting the books of account of the assessee as unreliable. This was so decided in Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC). Whether in a given case the Income-tax Officer may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must, however, depend upon the facts of each case. It is unnecessary to elaborate this question in this case, because in our view the question on which the High Court directed the Tribunal to state a case and which the High Court answered did not arise out of the order of the Tribunal. As we have already stated, before the Tribunal at the hearing of the appeal under section 33 of the Income-tax Act, only two questions were argued: (1) that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax vs. Devi Prasad Vishwanath (Supra) has been followed by the Hon'ble Madhya Pradesh High Court in case of CIT vs. Daulatram Pannalal Modi 129 ITR 398 (M.P.). The Court held as under : - "Having heard learned counsel for the parties, we have come to the conclusion that this reference should be answered in the negative and against the assessee. As held by the Supreme Court in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 , where there is an unexplained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income, it is income from a source which has already been taxed. In the instant case, therefore, the assessee had to show, by adducing satisfactory evidence, that the cash credits were referable to the undisclosed income of the very known or disclosed source, namely, the business, whose income had already been estimated. The ITO held that the cash credits represented income from undisclosed sources. This finding was not set aside either by the AAC or by the Tribunal. The Tribunal see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the paper book, in which ₹ 2,50,000/- has been deposited, but neither it is mentioned that it was cash nor it is mentioned how the amount similar to the credit was credited in his bank account. No explanation is given before the authorities below and even during the course of arguments before us. Nothing is clarified as to how equivalent amount of cash credit was deposited in his bank account. In the case of remaining creditors, it is not a denying fact that equivalent amounts of cash credit was deposited in their bank accounts in cash for issuing cheques in favour of the assessee. This created serious doubt in the explanation of the assessee regarding genuineness of the transaction in the matter. The AO asked the assessee to produce all the creditors for examination on oath in order to find out truth in the matter. The assessee produced one of the creditors before the AO for examination, but showed his inability to produce other creditors, which is also clear from the order sheet dated 18.12.2007 (PB-126). Prior to that, the assessee sought time from the AO to produce remaining creditors for examination, but later on did not produce them. The ld. counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank balance before issue of cheque was ₹ 10,794/- and equivalent amount of cash credit was deposited in her bank account for issue of cheque in favour of assessee. For assessment year under appeal, she filed return of income at ₹ 1,02,476/- only. In the case of Sh. Rampal Sing, it is already noted above that the deposit entry in his case is not explained and prior to issue of cheque, there was bank balance of ₹ 3708/- only. He has filed the return of income for the assessment year under appeal at loss with agricultural income (PB-102). In the case of Shri Shariq Ali Khan, the bank balance is his account was ₹ 1055/- prior to issue of cheque and equivalent cash amount was deposited for issuing cheque in favour of the assessee. He has filed return of income at ₹ 70,373/- plus agricultural income (PB-116). These details noted in the assessment order and the details verified from the paper book would clearly support the findings of the AO that none of the creditors were persons of sufficient means to advance any loan to the assessee. Filing of balance sheets, cash flow statements, cash books etc. have no evidentiary value because according to the reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer treated the loan as assessee's income from undisclosed sources. The Appellate Assistant Commissioner dismissed the assessee's appeal on the ground that the assessee could not even establish the identity of the parties. On further appeal by the assessee, the Appellate Tribunal held that mere filing of confirmatory letters did not discharge the onus that lay on the assessee and there was no material on the record to establish the identity of the creditors: Held, that the Tribunal had taken all the relevant facts into consideration and the conclusion arrived at by the Tribunal that the loans represented the assessee's income from undisclosed sources was not perverse or unreasonable." 10.1 The Hon'ble Calcutta High Court in the case of CIT Vs United Commercial and Industrial Co. (P) Ltd., 187 ITR 596 held as under: "The primary onus lies on the assessee to prove the nature and source of credits in its account. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o meet out their household expenses or day-to-day requirements. Therefore, it is unbelievable to accept the contention of the assessee that said persons were having creditworthiness to advance any loan to the assessee. The documents produced by the ld. counsel for the assessee in the paper book merely prove the case of assessee superficially, which is far from reality or truth. When the test of human probabilities after considering the surrounding circumstances as is propounded by Hon'ble Supreme Court in the case of Durga Prasad More (supra) and Sumati Dayal vs. CIT (supra), is applied to the facts of the case, it is clear that the ld. CIT(A) was justified in confirming the addition u/s. 68 of the IT Act. In the present case, the assessee has not adduced any sufficient evidence before the authorities below to prove the creditworthiness of the creditors and genuineness of the transactions in the matter. Therefore, the assessee has not satisfied the essential ingredients of section 68 of the IT Act. 12. In the case of Rohini Builders and U.M. Shah (supra), the departmental appeal was dismissed finding no substantial question of law because the findings of the Tribunal were based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the names and address of the creditors of AO and all the creditors were income tax assessee and having paid loan by giving account payee cheques and the interest was paid to the creditors by making TDS on the interest amount, but the revenue did not examine the creditors ? (v) Whether the order of the ITAT confirming the addition of ₹ 11,00,000/- and ₹ 2,00,000/- was perverse having regard to the evidence and material on record.? 4. It is submitted by learned counsel appearing for the appellant, relying upon CIT v. Orissa Cement (P) Corporation (1986) 159 ITR 78 (SC); DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj); Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Guh); CIT v. Divine Leasing and Finance Ltd (2008) 299 ITR 268 (Del); CIT v. Dwarikadish Investment (P) Ltd. (2011) 330 ITR 298 (Del) and CIT v. Oasis Hospitalities (P) Ltd (2011) 333 ITR 199 (Del), that the appellant-assessee discharged its burden under Section 68 of the Income Tax Act by giving the names, PAN numbers, and producing the assessment orders and accounts books of the unsecured creditors. The loans were taken by the banking channels. It is submitted that once the burden was discharged by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords namely the bank accounts to find out whether the unsecured loan transactions were genuine. He considered each and every loan transaction and found that none of the individual unsecured creditors could be said to be creditworthy to advance loans for such amounts. The observations made by the AO discussed by the ITAT are re-produced as follows :- 9.1 The AO discussed each and every creditor in the assessment order and the crux of the findings of the AO had been that there were very small bank balances in the bank accounts of the creditors and they were having meager income and as such, they were not men of means to advance any loan to the assessee. In the case of Abhay Maheshwari, there was very small balance of ₹ 3528/- in his bank account. He was examined on oath and he was not able to give source of cash deposit to the satisfaction of the AO. He was earning hardly one lac rupees and spent 40,000/- to 50,000/- for household purposes. During his examination on oath, he was not able to satisfactorily explain the availability of funds with him for giving loan to the assessee. In his case, he has filed return of income for the assessment year under appeal at ₹ 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining creditors before the AO. Even in the statement of one of the creditors recorded by the AO, Shri Ambhay Maheshwari, he was not able to explain his source of deposit or advancing loan to the assessee through genuine source. It is well settled law that burden is upon the assessee to prove ingredients of section 68 of the Act by proving identity and creditworthiness of the creditors and genuineness of the transactions. The assessee has, however, failed to prove the creditworthiness of the creditors who were having only meager income. No details of their savings have been filed. The assessee has never shown his willingness to produce the remaining creditors for examination before the AO. Therefore, the genuineness of the transaction could not have been examined by the AO. The smallness of the bank balance in the bank accounts of the creditors prior to issue of cheques would clearly reveal that they were not having any source and it was the money of the assessee which was routed through the bank accounts of the creditors for the purpose of giving credits to the assessee. These were, therefore, accommodation entries only and as such, could not be considered as genuine transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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