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TMI Blog2015 (6) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... oportionate interest has to be disallowed. He further observed that such interest has to be worked out after considering the credit balance also. He further observed that proportionate profit should also be credited - HELD THAT:- CIT(A) has rightly observed that interest cannot be calculated merely on the basis of debit entries. The Ld. CIT(A) has recalculated the interest after considering the various credit entries in the partners account and also proportionate profit. We are satisfied with this conclusion and, therefore, uphold the order of Ld. CIT(A). Addition u/s 68 - unsecured loans from various persons - CIT-A deleted the addition - onus to prove - HELD THAT:- Onus was on the assessee to prove the creditworthiness of the depositor which has not been discharged. AO after having pointed out that cash was deposited before giving loans to the assessee by almost all depositors, still the CIT(A) did not scrutinize the bank account or bothered to ask the assessee to present these creditors and allowed the relief which, in our opinion, is not correct. As we have discussed only few accounts above, while giving example but we have perused the bank account of all the parties and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer by making of disallowance of interest paid on unsecured loans. 5. That the order of CIT(A)-II be set aside and that of Assessing Officer be restored. 3. Ground No.1 : After hearing both the parties we find that a survey was conducted in the premises of the assessee on 7.9.2006. During the survey, the assessee surrendered a sum of ₹ 1,60,00,000/- on account of certain discrepancies found during the survey. As per the surrender letter filed by the assessee on 13.9.3006, it was undertaken that assessee would declare a net profit of ₹ 1,60,00,000/- upto 7.9.2006 without claiming any kind of deduction or exemption. However, from the perusal of pre-survey and post-survey profit and loss account, the Assessing Officer noticed that for the period 1.4.2006 to 7.9.2006, assessee had shown a net profit of ₹ 83,47,719/-. For the later period i.e form 8.9.2006 to 31.3.2007, the assessee has shown net profitof ₹ 77,75,032/- which include an amount of ₹ 67 lakhs as income surrendered during the survey. Thus, the net profit for post-survey period itself comes to ₹ 10,75,832/- which was required to be included in the surrendered income of ₹ 1.60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the provision of law it has been clearly decided that Profit always accrued at the end of the year and day to day profit shall not be considered while taking the profit of the whole of the year. The profit of ₹ 83,47,719 was worked out at an estimate figure which has been duly accumulated in the trading account prepared from 01.04.2006 to 31.03.2007. The addition of ₹ 10,75,832 is highly objected and not called for in accordance to facts of the case. 4. The Assessing Officer examined this reply and was of the opinion that assessee was trying to circumvent the undertaking given by him during the survey by misinterpreting the wording used in the surrender letter dated 13.9.2006. The assessee according to this letter had categorically undertaken to declare net profit of ₹ 1.60 crores upto 7.9.2006, therefore, Assessing Officer again issued a show cause notice along with the surrender letter to explain. In the second reply, it was submitted as under:- That it is admitted fact that letter of surrender/declaration on income was filed during the course of survey operation U/S.133A of Income Tax Act 1961. The second para of the letter reveals which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impounded and that there was no document as per which profit could be determined at an amount higher than that surrendered by the appellant. It was further submitted before the A.O. vide letter dated 18,12.2009 by the appellant that the appellant made the offer of surrender without any concrete evidence or documents impounded during the course of survey operations. It was specifically mentioned that there was no impounded document on the basis of which income could be determined above the income shown by the appellant. 8.3 Therefore, though as per the surrender letter the appellant appears to have agreed for showing income of ₹ 1,60 crores upto 7.9.2006 in the absence of any specific evidence discussed by the A.O. there would not be any justification to make further addition to the income of the appellant. 8.4 The stand of the appellant in this regard appears to be justified if seen from another angle also. Before the A.O. and during appeal proceedings the Ld. Counsel has explained that the book profit as on 7.9.2006 has been casted taking into account the value of closing stock at a hypothetical figure. This contention of the appellant has not been shown to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding book profit up to 7.9.2006. The Assessing Officer has not disturbed the results declared by the assessee and he has simply added the profits which were there in the books of the assessee after 7.9.2006 and therefore, addition is justified. 10. We have considered the rival submissions carefully. No doubt the Hon'ble Supreme Court confirmed the decision of Hon'ble Madras High Court in the case of CIT v S. Khader Khan Son (supra). The decision of Hon'ble Supreme Court is not elaborative, therefore, when the decision of Madras High Court is perused, it becomes clear that no addition can be made primarily on the basis of statement recorded during the survey. Therefore, clearly this ratio would be applicable if addition has been made purely on the basis of statement made during the survey. However, in the case before us the statement recorded during the survey itself shows that the agreement dated 9.6.2006 which was executed between the assessee and Smt. Sonia Jain for sale of plot @ ₹ 75000/- per biswa was found. The assessee had replied in response to the query regarding this agreement that he was not able to explain about this agreement. Another agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1 Crore 60 lacs including book profit upto 07-09-2006 to cover up difference in purchase/sale price of plots and all other defects in books/loose papers and documents. The firm had purchased and sold the plots on different dates to different parties against advances and registration deeds impouned by your honour. The assessee firm agreed to declare net profit upto 07-09-2006 amounting to ₹ 1 Crore 60 lacs inclusive of books profit in Financial year 2006-07 relevant to A.Y. 2007-08 subject to no penal action and prosecution. The firm shall declare net profit of ₹ 1 Crore 60 lacs upto 07-09-2006 and shall not claim any kind of deduction or exemption. The firm shall make entry of net profit of ₹ 1 Crore 60 lacs upto 07-09-2006 which shall be inclusive of book profits. The firm shall pay advance tax on declared net profit in accordance to provision of law. This agreement is without any pressure and made voluntarily. Thanking you. Yours faithfully M/s Ekta Construction Co., Dhuri through partner 12. The above clearly shows that surrender of ₹ 1,60,00,000/- was made upto the period of 7.9.2006. The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. 15. The Ld. CIT(A) observed that because of the decision of Hon'ble Jurisdictional High Court in the case of CIT v Abhishek Industries Ltd (supra), the proportionate interest has to be disallowed. He further observed that such interest has to be worked out after considering the credit balance also. He further observed that proportionate profit should also be credited. Accordingly, he reworked the disallowance of ₹ 50,570/-. 16. Before us, Ld. DR supported the order of Assessing Officer. 17. On the other hand Ld. Counsel for the assessee submitted that in view of the absence of any provision for charging of interest in the partnership deeed, no interest should have been disallowed. 18. We have considered the rival submissions carefully and find that Ld. CIT(A) has rightly observed that interest cannot be calculated merely on the basis of debit entries. The Ld. CIT(A) has recalculated the interest after considering the various credit entries in the partners account and also proportionate profit. The calculation have been reproduced in para 10.2 at pages 9 10. We are satisfied with this conclusion and, therefore, uphold the order of Ld. CIT(A). 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inder Sharma C/o M/s Raj Kumar Deepak Kumar, Dhuri 3,00,000/- 10 Smt. Ranjit Kaur W/o Sh. Munshi Singh C/o M/s Sushil Kumar Deepak Kumar, Dhuri 3,00,000/- 11 Smt. Raksha Devi W/o Sh. Kuldip Kumar C/o M/s Sushil Kumar Bharat Bhushan, Dhuri. 3,00,000/- 12 Smt. Renu W/o Sh. Ashok Kumar, Dhuri. 3,00,000/- 21. Out of the above parties, only one person i.e M/s Krishna Silk house, Dhuri responded through proprietor Shir Praveen Kumar whose statement was recorded in the absence of Shri Deepak Anand, Advocate of the assessee. Further, Shri Deepak Anand appeared on behalf of the Shri Hari Pal Gupta and filed the letter written by him along with necessary documents. The Assessing Officer accepted these two transactions but in the absence of any evidence or creditor being produced before him, he observed that no evidence was available in respect of the parties listed at Sr Nos. 3 to 12. He also observed that these persons neither contacted his office nor sought any adjournment, therefore, show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of the depositors which would have shown real facts. Simply because loans have been ultimately returned through account payee cheques, cannot be basis for accepting the unsecured loans. 24. On the other hand Ld. Counsel for the assessee submitted that assessee has furnished the confirmations, PAN numbers etc. before the Assessing Officer and all the parties from whom loans were raised were Income-tax payees. Once those persons were income tax assessees, then no further burden was on the assessee to prove anything else. In this regard, he relied on the decision of Hon'ble Punjab Haryana High Court in the case of CIT v Amar Chand and Sons ITA No. 243 of 2011 (copy of the decision was filed). He also relied on another decision of Hon ble Punjab Haryana High Court in the case of CIT v Laul Transport Corporation 214 Taxation 329 (P H). He also relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Orissa Corporation P. Ltd 159 ITR 78. He further submitted that once it is proved that loans have been given through cheques by regular Income-tax assessees, then no further burden lies on the assessee because Revenue cannot ask for source of source. In thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. Therefore, it is clear that normally if the depositor or creditor is a regular Income-tax assessee and his sources has been duly reflected in his return and affairs of such creditors have been accepted by the respective Assessing Officer, then no further doubt can be raised unless contrary evidence is available. Whereas in the case before us no such assessment order was produced before the Assessing Officer wherein the respective officer have recorded the satisfaction. In fact to prove that creditworthiness was not genuine, Assessing Officer summoned these parties who never appeared before him. Similarly in the case of CIT v Laul Transport Corporation (supra) the assessee had taken loan of ₹ 25,49,000/- from 18 parties. The Assessing Officer accepted the loan from three persons amounting to ₹ 7,65,000/- and in respect of balance of ₹ 17,84,000/-, it was concluded that assessee has not satisfactorily explained and the amount was added to the income of the assessee. In this case also the addition has been deleted by the Tribunal. The Hon'ble High Court observed as under:- In the present case, a perusal of the impugned order passed by the Tribunal reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be sustained. When the matter travelled to the Supreme Court the issue was discussed in detail and a reference was made to the various earlier decisions of Hon'ble Supreme Court. Ultimately, it was observed as under:- In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 17. In Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) ; [1995] Supp 2 SCC 453 this court held : In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption pro vided by the Act lies upon the assessee. But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and even the income from earlier years was kept at home which was deposited in the bank when the amount was lent to the assessee. She has bank account No. 515112899, copy of which is available at pages 34 to 36 of paper book. The relevant portion of the account during the year reads as under:- The above would clearly show that account is opened on 18.8.2006 with a sum of ₹ 1500/- and then a sum of ₹ 3 lakhs deposited in cash on 23.8.2006 and cheuqe is issued to the assessee again on 23.8.2006 which was cleared on the same date. This clearly shows that bank account of Smt. Ranjit kaur had no balance and cash was and deposited just to facilitate the loan to the assessee. If she is a professional then why bank account was not opened earlier, why the money was kept at home if she wanted to earn interest. Her income is stated to be sum of ₹ 81,900/- during the year which is a meager income and how she was able to save ₹ 3 lakhs that too in cash. No explanation was given to us when this question was confronted to Ld. Counsel. This simply shows that there is not credit worthiness of the depositor and return have been filed just to prove the point that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the Hon'ble Supreme Court in the case of CIT v P.Mohankala (supra). 38. Identical issue came up for consideration before Hon'ble Gujarat High Court in the case of Blessing Construction v ITO 32 Taxman. Com 366 (Gujrat). In this case also a loan of ₹ 1 lakh was given after depositing the same in cash. In that case also, it was mainly contended that Revenue has no authority to examine the source of source. The Hon'ble Court after considering these submissions at para 7 observed as under: 7. With respect to the legal contention that the Revenue cannot insist on assessee supplying the source of source is impeccable. However, the facts of the present case are vastly different. It is of-course true that some of the observations made by the Tribunal may suggest that the Tribunal did concern itself with the source of the source. However, such observations cannot be picked in isolation as to treat that as the conclusion of the Tribunal. When one reads the_ order of the Assessing Officer that the Commissioner (Appeals)) and also of the Tribunal inescapable conclusion one arrives at is that the Revenue authorities as well as the Tribunal found the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 under appeal, she has filed return of income at ₹ 1, 01,000/- only. In the case of Smt. Mithlesh Maheshwari, the 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7. We do not find that the AO failed to exercise his jurisdiction in refusing to summon the file of unsecured creditors other than Shri Abhay Maheshwari, who had appeared and was examined. We also do not find that the AO has committed any error in examining the account books. None of the creditors under examination could prove their creditworthiness. Each one of them had a very small bank balance of a few thousand rupees only and that in all the cases the entire sum given as unsecured loan was deposited on the same day, when it was advanced to the assessee-appellant. 8. We do not find that any of the substantial questions of law framed by the appellant arises for consideration of the Court. The findings recorded by the AO about the creditworthiness of the unsecured loans of ₹ 13, 00, 00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah C/o Shiv Rickshaw Works, Dhuri. 21.900/- 6 Smt. Kushal Rani W/o Sh. Pawan Kumar C/o M/s M.S.G Rickshaw Works, Dhuri 2,800/- 7 Sh. Surinder Sharma C/o M/s Raj Kumar Deepak Kumar, Dhuri. 1.870/- 8 Smt. Ranjit Kaur W/o Sh. Munshi Singh C/o M/s Sushil Kumar Deepak Kumar, Dhuri. 21.900/- 9 Smt. Raksha Devi W/o Sh. Kuldip Kumar C/o M/s Sushil Kumar Bharat Bhushan, Dhuri. 34,700/- 10 Smt. Renu W/o Sh. Ashok Kumar, Dhuri. 23.200/- Smt. Renu W/o Sh. Ashok Kumar, Dhuri. ₹ 1,75,910/- 41. On appeal, since the Ld. CIT(A) held the loans to be genuine, therefore, this disallowance was deleted. 42. Both the parties were heard who submitted that this ground would be consequential to ground No.3. 43. After considering the rival submissions we find that Ground No.3 has been adjudicated by us whereby loan of ₹ 1 lakh has been accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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