9911796707
TMI Blog2012 (11) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 defici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any appeal 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86,51,000 44,42,000 1,06,22,000 43,61,494 17,92,579 1,74,41,000 Net Profit 1,56,882 34,917.95 1,79,048.46 1,86,586.38 72,733.28 2,59,688 NP ratio 1.81% 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at finding of the CIT(A) supported by past history of the assessee and comparable cases. 11. In the light of above discussion, we do not find any infirmity in the order of CIT(A). The order of CIT(A) on the issue is confirmed including the issue related to separate addition on account of interest and disallowance out of other expenses. 12. Ground nos.2 3 of the appeal relates to addition of ₹ 8,50,000/- under section 68 of the Act. 13. During the assessment proceedings the AO noticed from balance sheet and other papers filed in assessment proceedings that three new loans/deposits were raised by the assessee from outsiders and deposits of family members, namely, Smt. Mama Agrawal, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit are liable to be added back in terms of section 68. In reply to this, there remains mere repetition of the fact as said before on the ground of genuineness of transactions, identify and creditworthiness, and it was also stated that if the depositors are not turned up in compliance to summons u/s 131, it is not the default of the assessee and in support of which reliance was also placed on some of the decisions. 14. The A.O. held that it is well settled that where any sum is found credited in the books of account, assessee has to prove three things viz., identity of the creditors, capacity of the creditors, and genuineness of the transactions. Though ample opportunities have been provided 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the addition of ₹ 8,50,000/-. The CIT(A) deleted the addition on the ground that the A.O. cannot ask about source of source. He relied upon a judgement of Hon ble Allahabad High Court in the case of CIT vs. Jauharimal Goel, 201 CTR (All) 54. Secondly, the CIT(A) deleted the addition on the ground that after rejection of books of account addition under section 68 can not be made. The CIT(A) relied upon judgement of Hon ble Allahabad High Court in the case of CIT vs. Raghavendra Pratap Singh in 14 MTC 415 (All) and ACIT vs. D.M. Brothers (supra). Finally, the CIT(A) held as under :- (Page nos.30 31) However, the AO without taking any action as required by him under the provision of 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Narayan Das Sons ₹ 60,000/- Total Rs.8,25,000/- 19. The case of the A.O. is that the creditors were neither produced by the assessee nor appeared inspite of issuance of summons under section 131 of the Act. The A.O. noticed that all the cash creditors are resident of Mathura and relatives of the assessee. The A.O. examined the Bank accounts of the creditors and found that cash was deposited in their Bank accounts and cheques were issued in favour of the assessee. The A.O. noticed that inspite of ample opportunities given to the assessee, the assessee failed to establish the creditworthiness of the creditors. The assessee has failed to discharge the primary onus. 20. The CIT(A) deleted the additions on following reasons and grounds :- i) Addition under section 68 cannot be made after rejecting the books of account. ii) The A.O. cannot investigate the source of the source. iii) All creditors are assessed to tax. 21. Under the facts and circumstances, to examine the issue, we would like to refer to section 68 of the Act which is rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act to submit a statement of case to the High Court of Allahabad was rejected. But the High Court directed the Tribunal to submit a statement of case on the question whether there was any material to hold that the sum of ₹ 20,000 was income of the assessee from some other source, and was not income included in the assessed income on the rejection of the books of account . Pursuant to this direction, the Tribunal submitted a statement of the case raising the following question:- Whether, on the facts and in the circumstances of the case, there was any material to hold that the sum of ₹ 20,000 was income of the assessee from some other source and was not income included in the assessed income on the rejection of the books of account? 22.3 The Tribunal in making the reference observed that at no stage of the proceeding did the assessee urge that the sum of ₹ 20,000 got merged with the estimate of profit made in the business at the head office ; the only objection raised by the assessee was that the sum should not have been added as income from some undisclosed source. 22.4 The High Court considered the matter in great detail and recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th to add to the quantity of sales and the rate in the circumstances of the case. The High Court, in disposing of the application under section 66(2), expressed the view that because the amount of ₹ 20,000 was entered in the books of account of the business, there was some material to hold that the amount was income of the assessee from the business and not from some other source. But it was not open to the High Court to direct the Tribunal to state a case on a question which was never raised before or decided by the Tribunal at the hearing of the appeal. The question again assumes that it was for the Income-tax Officer to indicate the source of the income before the income could be held taxable and unless he did so, the assessee was entitled to succeed. That is not, in our judgment, the correct legal position. Where there is an explained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource of the source and the assessees are assessed to tax also do not help to the assessee. In the case under consideration, it is admitted facts that in case of Smt. Mamta Agarwal, Shri Autal Kumar (HUF), Shri Rajiv Kumar Agarwal(HUF) and Smt. Suman Agarwal cash have been deposited in Bank account of respective creditors before issuing the cheques to the assessee. Under this circumstances, the I.T.A.T., Agra Bench in the case of Smt. Suman Gupta vs. ITO in ITA No.454/Agr/2009, order dated 16.03.2012, 138 ITD 153 (Agra) which has been confirmed by the Hon ble High Court in Income Tax Appeal No.680 of 2012, judgement dated 07.08.2012, held that under these circumstances there are no sufficient evidence before the authorities below to prove the creditworthiness of the creditors and genuineness of the transactions in the matter.. The relevant findings of I.T.A.T are reproduced as below _(138 ITD 160 to 164):- 9. We have considered the rival submissions and th (Agra)e material available on record. It is not in dispute that there were cash deposits of the equivalent amounts in the bank accounts of the creditors just before advancing loan to the assessee or on the date of issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch, 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 ₹ 1,02,850/- (PB-60). In the case of Shri Amit Maheshwari, he was also having small bank balance of ₹ 2429/- before issue of cheque to the assessee and equal amount of the cash credit was deposited in the bank account. He has filed return of income for the assessment year under appeal at ₹ 44972/- (PB-71). In the case of Smt. Keerti Maheshwari, in her bank account, there was balance of ₹ 4688/- only prior to issue of cheque to the assessee and equivalent amount of cash credit was deposited for the purpose of issue of cheque in favour of the assessee. For the assessment year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transactions. Merely because the loans have been received through banking channel, is not sacrosanct to make a non-genuine transaction as genuine transaction. 10. Hon ble Calcutta High Court in the case of Bharati Pvt. Ltd. vs. CIT, 111 ITR 951 held as under : In the course of assessment proceedings, the Income-tax Officer found that the assessee had shown ₹ 20,000 as loan in its books taken from two parties. The assessee produced the alleged confirmatory letters from those parties before the Income-tax Officer in support of the two loans. The Income-tax Officer served notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted as genuine unless the identity and creditworthiness of the creditors are proved. Mere payment of account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. 10.3 The Hon ble Supreme Court in the case of Durga Prasad More, 82 ITR 540 and Sumati Dayal, 214 ITR 801 held that the Courts and Tribunal have to judge the evidences before them by applying the test of human probabilities after considering the surrounding circumstances. 11. On consideration of the facts of the case in the light of above discussion and decision, we do not find any justification to interfere with the order of the ld. CIT(A). The assessee has failed to prove the creditworthiness of all the creditors and no source of their income has been filed. At the best the assessee is able to prove identity of the creditors, but the assessee failed to prove the genuine credit in the matter. All the creditors have been rightly found to be men of meager means and no source of income have been filed to prove that they were having sufficient funds or savings in order to give loans to the assessee. On verification of the bank account of the depositors, it was specifically found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 by the Hon ble High Court of Allahabad are reproduced as below :- 3. The appeal has been preferred on the following substantial questions of law, as follows :- ( i) Whether the ITAT, was correct to confirm the addition of ₹ 11 lacs under Section 68 of the Act, which was taken as loan from 5 lenders without summoning the lenders under Section 131 of the Act or 133(6) of the Act despite requested in writing before A.O. on 26.11.2007, 18.12.2007 and 24.12.2007 ? ( ii) Whether the ITAT was right in confirming the addition of ₹ 2 lacs given by Abhay Maheshwari who personally appeared before the A.O. and examined on oath and have accepted having given the loan to the appellant by account payee cheque ? ( iii) Whether the ITAT was correct to confirm the addition of cash credit under Section 68 of the Act when the appellant has discharged the primary burden by furnishing the confirmatory letters, copy of the bank pass book returns of past 3 years, balance sheet, cash fallow statements and PAN numbers, affidavits of all the creditors proving the identity, capacity of the genuineness of the transaction, the burden shifted of the revenue, which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned with the genuineness of the transactions. In case of share application money, it was held in CIT v. Lovely Exports P. Ltd. (2009) 319 ITR (st) 5 (SC), that the genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. It was further held as follows :- As far as creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditor/subscriber showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgement further holds that once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 remand report filed by the AO, those documents were not filed with the return of income. Moreover, no regular books of account have been maintained by any of the creditors and majority of them have shown estimated income in their returns of income. Therefore, such balance sheet, cash flow stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans of ₹ 78,75,249/-, does not suffer from any error of law. 27. To maintain consistency, we follow the above 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, 138 ITD 153 (Agra), where in the ratios of judgments relied upon by the assessee and contention of the assessee have been considered. In the light of that, the addition to the extent of ₹ 5,75,000/- on account of Smt. Mamta Agarwal ₹ 1,00,000/-, Shri Atul Kumar (HUF) ₹ 2,00,000/-, Shri Rajiv Kumar (HUF) ₹ 1,50,000/- and Smt. Suman Agarwal ₹ 1,25,000/- are required to be confirmed. Because the assessee has filed to produce sufficient evidence in support of credit worthiness of creditors. We, therefore, set aside the order of CIT(A) and restore the order of A.O in respect of additions in respect of these creditors. In the light of the fact, addition to the extent of ₹ 5,75,000/- is confirmed. However, the addition to the extent of ₹ 2,50,000/- on account of Smt. Priyanka Gupta ₹ 70,000/-, Smt. Akansha Gupta ₹ 1,20,000/- and Shri Narayan Das Sons ₹ 60,000/- have been rightly deleted by the CIT(A) as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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