DCIT, CIRCLE, BHILWARA vs. SHRI PRAHALAD RAI RATHI, BHILWARA

Assessee By Shri Mahendra Gargieya, Advocate and Shri Devang Gargieya, Advocate Ms. Nidhi Nair, JCIT-DR Revenue By Date of hearing 17/01/2023 Date of 13/04/2023 Pronouncement O R D E R Dr. S. SEETHALAKSHMI, JM

The Revenue has filed this appeal challenging the order passed by Ld CIT(A), Ajmer dated 26-03-2018 for the assessment year 2015-16 raising therein following grounds of appeal. ‘On the facts and in law, the ld.CIT(A), Ajmer erred in:-

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 1. Deleting addition of Rs.1,47,01,596/- on account of unsecured loans treated as unexplained cash credit u/s 68 of the I.T. Act without appreciating the fact of the case.

no. 1 & 2 taken by the revenue against the deletion of addition of Rs. 1,47,01,596/- made by the AO on account of unsecured loans treated as unexplained cash credit u/s 68 of the Act and relating to ground of Appeal no. 2 against the deletion of addition of Rs. 1,62,39,154/- made by the AO on account of unsecured loans treated as unexplained expenditure u/s 69C of the Act are that the AO noticed share trading loss of Rs 1,73,42,965/- incurred in the transactions done through India Nivesh Securities P Ltd (India Nivesh) and asked the assessee to submit details of payment and source thereof. The assessee vide letter 14-11-2017, explained that to make payment of security amount, he obtained loans from following parties:

1. M/s Mamta Spinners Pvt. Ltd. Rs. 2,14,75,750/- 2. M/s Mamta Surgical Cotton Industries Rs. 74,65,000/- 3. M/s Sanjay Kumar Sandesh Kumar Rs. 20,00,000/-

4. Smt. Preeti Rathi Rs. 8,00,000/- Total Rs. 3,17,40,750/- The AO further asked to submit bank statements and details of loans including squared up accounts. In response the assessee submitted letters dated 5-12-2017

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA and 9-12-2017. But, AO alleging some discrepancies therein, issued SCN, showing the names of the creditors as per Tax Audit Report Annexure B as under:

1. P.R Rathi HUF Rs. 35,00,000/- 2. Smt. Shashi Kala Rathi Rs. 14,74,000/- 3. Sandesh Rathi HUF Rs. 24,45,000/- 4. Sanjay Rathi HUF Rs. 9,85,596/- 5. Smt. Preeti Rathi Rs. 25,10,000/- 6. R.S. Rathi HUF Rs. 37,87,000/- Total Rs. 1,47,01,596/- Further, the AO referred to assessee’s letter dated 14-11-2017 showing the source of unsecured loans of Rs 3.17 Cr from the aforesaid 4 parties and asked why the unsecured loans of Rs. 3, 09, 40, 750/- (Rs. 3,17,40,750 – Rs. 8,00,000) should not be treated as unexplained. In response, the assessee submitted letter dated 21-12- 2017. The AO after considering reply of appellant made the addition of Rs. 1,47,01,596/- u/s 68 holding as under: "The submission of the assessee has been carefully considered but the same is not found satisfactory in the eyes of law. The assessee claimed that he has having business relation with these companies and fund transferred to M/s India Nivesh Securities Pvt. Ltd were received from these companies. The assessee has also claimed that funds so received from these companies were repaid during the year itself. Form the balance sheet it is very clear that the assessee booked loss of Rs.1,63,29,629/- in trading of shares and a sum of Rs.1,45,83,275/- was still receivable from M/s India Nivesh Securities Pvt. Ltd. Initially the assessee claimed that the funds transfer to M/s India Nivesh Securities Pvt. Ltd were received from the above three companies, if the contention of the assessee is accepted then the next question arise, as how the assessee repaid the entire amount to the above said companies, there is a huge loss on account of share trading and remaining balance still lies with M/s India Nivesh Securities Pvt. Ltd. The assesse has not having so much capital to repay the funds so received. In the balance sheet the assessee has shown outstanding unsecured loans to the tune of Rs. 1,73,57,329/- and out of which Rs.1,47,01,596/-was raised during the year. The assessee has submitted confirmations, bank statements in respect of these unsecured loans, on perusal of these bank statements it is observed that just before extending the loan to the assessee (there was a transfer entry through which fund was credited in the lender account and later on the fund

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA transfer to the assessee. These transfer entries are again received from the above three concerns .e. M/s Mamta Spinner Pvt. Ltd, M/s Mamta Surgical Cotton Industries and M/s Sanjay Kumar Sandesh Kumar. Further in the case of M/s Sanjay Rathi HUF the assessee submitted that unsecured loan of Rs.9,85,5961- was received through transfer entry. On perusal of books of accounts it is observed that on the last day of the financial year, initially commission on Wheat flour sales of Rs.1,00,42,400/- was credited and commission on wheat purchase of 91,90,400 was debited in the name of Sanjay Rathi HUF and profit of 9,85,596/- was created and the same was received as unsecured loan by the assessee through transfer entry. Copy of ledger account reproduced as under:

Kedarmal Radheyshyam Sadar Bazar GULABPURA-311021 DIST. BHILWARA (RAJ.) Sanjay Rathi HUF Wheat Ledger Account 1-Apr-2014 to 31-Mar-2015 Date Particulars Vch Type Vch Debit Credit No.1 31-03-2015 To wheat commission Journal 43 91,90,400.00 purchase By Commission Wheat Journal 44 1,00,42,400.00 flour sales To Commission Journal 45 50,212.00 Sanjay Rathi HUF Journal 46 9,85,596 By MUDAT Journal 48 1,83,808.00 1,02,26,208.00 1,02,26,208.00 The whole scenarios show that the fund repaid by the assessee to the above concerns was again received back in the form of unsecured loans in the name of other persons. Thus, the re-payment made to these above concerns remained unexplained. In view of the above unsecured loans obtained during the year amounting to Rs. 1,47,01,596/- are treated unexplained in light of the provision of section 68 of the Act and added to the total income of the assessee. Penalty proceedings w/s.271(1)(c) of the Income Tax Act, 1961 are initiated separately for furnishing inaccurate particulars of income.’’

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA Further, the AO treated the remaining amount of Rs. 1,62,39,154/- (Rs. 3,09,40,750 Rs. 1,47,01,596) also as unexplained expenditure and made the addition of Rs. 1,62,39,154/- u/s 69C holding as under:

‘The assessee has only submitted the copy of confirmations and bank statements of these concerns to whom repayment of Rs.3,09,40,750/- was made but source of this repayment was not given. It is only the unsecured loans which could explain partly re-payment but as per details reasoning given in the above Para, the same cannot be considered as source of the repayment and the same are treated as unexplained credit in the hands of the assessee. After considering these unsecured loans as unexplained there was remaining balance of Rs. 1,62,39,154/- which is almost equal to loss booked by the assessee in share trading. The assessee initially explained that this loss was paid by obtaining funds from three concerns but he failed to explain the source of repayment made to these concerns. In absence of any details an amount of Rs.1,62,39,154/- is considered as unexplained expenditure in the hands of the assessee in light of the provision of section 69C of the Act and added to the total income of the assessee. Penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 are initiated separately for furnishing inaccurate particulars of income. 2.2. In the first appeal, the Ld. CIT(A) deleted both the additions (pr. 4.6& 4.7 Pg. 6-8) by holding as under:-

“4.6 After going through the assessment order, I am of the view that the AO started the investigation with respect to the source of payments made to India Nivesh Securities Pvt. Limited. The appellant explained the source of investment as unsecured loans received from M/s Mamta Spinners Pvt. Ltd. (Rs. 2,14,75,750), M/s Mamta Surgical Colton Industries (Rs. 74,65,000), M/s Sanjay Kumar Sandesh Kumar (Rs. 20 lac) and Smt. Pr loans 3,09,40,750 received from M/s Mamta Spinners Pvt. Ltd. (Rs. 2,14,75,750), M/s Mamta Surgical Cotton Industries (Rs. 74,65,000), M/ Sanjay Kumar Sandesh Kumar (Rs. 20 Inc) as unexplained credit u/s 68. However, while completing the assessment he treated only amount of Rs. 1,47,01,596/- as unexplained credit u/s 68. Though the AO has not mentioned in the assessment order as to which of the unsecured loans of Rs. 1,47,01,596/- were treated by him as unexplained credit u/s 68, but apparently this amount must be the unsecured loans received from following six persons which are also appearing in the tax audit report: 1. P. R. Rathi HUF Rs. 35,00,000/- 2. Smt. Shashi Kala Rathi Rs. 14,74,000/- 3. Sandesh Rathi HUF Rs. 24,45,000/-

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 4. Sanjay Rathi HUF Rs. 9,85,596/- 5. Smt. Preeti Rathi Rs. 25,10,000/- 6. R.S. Rathi HUF Rs. 37,87,000/- ---------------------- Rs. 1,47,01,596/- 4.7 After reducing the amount of Rs. 1,47,01,596/- from the total unsecured loans of Rs. 3,09,40,750/- received by the appellant from M/s Mamta Spinners Pvt. Ltd. (Rs. 2,14,75,750), M/s Mamta Surgical Cotton Industries (Rs. 74,65,000), M/s Sanjay Kumar Sandesh Kumar (Rs. 20 lac), the AO treated the balance amount of Rs. 1,62,39,154/- as unexplained expenditure u/s 69C. It is seen that the appellant bas filed confirmatory letters, copy of I.T. Returns, copy of bank statements of all the above referred nine persons (6+3), from whom the unsecured loans are claimed to have been received by the appellant. The AO has treated the amount of Rs. 1,47,01,596/- as unexplained credit u/s 68 only on the ground that before extending the loan by these persons to the appellant, there was transfer entry (credit) in their bank account which was received from M/s Mamta Spinners Pvt. Ltd., M/s Mamta Surgical Cotton Industries and M/s Sanjay Kumar Sandesh Kumar. I am of considered view that when all the nine persons are assessed to tax and filing their return of income regularly, just because there was transfer entry (credit) in the account of the six individuals/ HUFS from M/s Mamta Spinners Pvt. Ltd., M/s Mamta Surgical Cotton Industries and M/s Sanjay Kumar Sandesh Kumar, the loans received from these six persons can not be treated as unexplained credit u/s 68. As far as the unsecured loans of Rs. 3,09,40,750/- received from M/s Mamta Spinners Pvt. Ltd., M/s Mamta Surgical Cotton Industries and M/s Sanjay Kumar Sandesh Kumar are concerned, the appellant has filed confirmatory letter, copy of ITR and bank statement of these persons also. These persons are filing their return of income regularly. After going through the evidences furnished by the appellant, which were also filed before the AO in support of the credit introduced in the form of unsecured loan from Shri P.R. Rathi HUF (Rs.35 lac), Smt. Shashi Kala Rathi (Rs. 14,74,000), Sandesh Rathi HUF Rs. (24,45,000), Sanjay Rathi HUF (Rs. 9,85,596), M/s Mamta Spinners Pvt. Ltd., M/s Mamta Surgical Cotton Industries, M/s Sanjay Kumar Sandesh Kumar, Smt. Preeti Rathi (Rs. 25,10,000), R.S. Rathi HUF (Rs, 37,87,000). I am of the considered view that there is no justification for sustaining the addition of Rs. 1,47,01,596- made by the AO u/s 68 or the addition of Rs. 1,62,39,154/- made u/s 69C. The additions appears to have been made by the AO without going through the copies of accounts of these parties as appearing in the books of account of the appellant and the evidences furnished by the appellant. Therefore, the addition of Rs. 1,47,01,596/- made u/s 68 and addition of Rs 1,62,39,154/- u/s 69C are hereby deleted.’’

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 2.3 Hence, the revenue is an appeal against the deletions of both these additions vide grounds of appeal number 1 & 2.

2.4 Ld DR mainly contended that in the facts and circumstances of the case the AO has rightly made the addition. Placing strong reliance on the findings of the AO, the ld. DR urged that the additions made may be restored and the order of the ld. CIT(A) on this aspect be reversed.

2.5 Per Contra, the Ld AR placed strong reliance upon the order of the ld. CIT(A) while deleting the addition of Rs. 1,47,01,596/- made u/s 68 of on account of the unsecured loans received from the six persons. He further contended that not only the initial burden lay upon the assessee w.r.t the credits received from the six persons, was duly discharged but even the source of the source was established as admitted by the AO also in as much as the amounts were received by the assessee through banking channel only and even in the hands of those six creditors, the source was the receipt through bank transfers. Thus, the assessee has fully established the identity, capacity of the creditor and genuineness of the transaction. The ld. CIT(A) thoroughly examined the transactions. In addition, he filed a paperbook and detailed written submissions which is reproduced here under. ‘’D-GOA- 1: Deletion of Addition of Rs. 1,47,01,596/- made u/s 68 on account of unsecured loans received from 6 persons: (AO Pg 2-6 pr. 3 CIT (A) Pg 4 pr. 4.3) 1. Assessee fulfilled all the conditions- S. 68 not applicable This part of the addition relate to the 6 parties from whom the assessee obtained loan of Rs. 1.47 Crore which were ultimately utilized by the assessee to repay to the 3-4 parties from whom loan of Rs. 3.09/3.17 Crore was taken to make payment to India Nivesh. Since the AO has made the addition u/s 68, the fulfillment of the 3 conditions are to be satisfied, the onus of which lay upon the assessee. The assessee did discharge the not only the initial onus but also went one step ahead. This is evident from the further submissions herein below:

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA

2.1 Onus Discharged Fully: At the outset it is submitted that u/s 68, it is only the initial onus, which lay upon the assessee to prove the identity and the capacity of the creditor and the genuineness of the transaction and once this initial onus is discharged, it shifts to the AO to rebut / disprove the same for making a valid addition. Kindly refer CIT v/s Shree Barkha Synthetics 182 CTR 175(Raj.) and Shankar Industries v/s CIT 114 ITR 689 (Cal). The same view has again been taken in CIT vs. First Point Finance Ltd 286 ITR 477 (Raj.), the Hon’ble Court after referring to the above decisions, held that ones the initial burden has been discharged in respect of the creditor, the burden shifts to the revenue to prove otherwise, in the following words: "This Court held after referring to the aforesaid decisions, that once the initial burden has been discharged in respect of the identity of investors, about their existence, and the confirmation from such investors has been obtained, the burden shifts to the Revenue to prove otherwise not only that the invested amount did not belong to the creditors but further it has to prove the said amount belonged to the assessee." 2.2 Kindly refer at a glance chart showing the relevant details of the creditors here under: S. Name of the Cash Amount (In Rs.) Copy of Copy of Ledger ITR No. Creditor Confirmation Account 1. M/s Mamta Spinners Rs.2,14,75,750/- PB 13-14 PB 13 -14 PB Pvt. Ltd. 15 2. M/s Mamta Surgical Rs. 74,65,000/- PB 16 PB 16 PB Cotton Industries 17 3. M/s Sanjay Kumar Rs. 20,00,000/- PB 18 PB 18 PB Sandesh Kumar 19 Total (A) Rs.3,09,40,750/- 4. P.R Rathi HUF Rs. 35,00,000/- PB 21 PB 22 PB 23 5. Smt. Shashi Kala Rathi Rs. 14,74,000/- PB 24 PB 25 PB 26 6. Sandesh Rathi HUF Rs. 24,45,000/- PB 27 PB 28 PB 29 7. Sanjay Rathi HUF Rs. 9,85,596/- PB 30 PB 31 PB 32* 8. Smt. Preeti Rathi Rs. 25,10,000/- PB 33 PB 34 PB 35 9. R.S. Rathi HUF Rs. 37,87,000/- PB 36 PB 37 PB 38 Total (B) Rs. 1,47,01,596/-

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA * ( Individual return of Mr. Sanjay Rathi submitted in paper book instead of HUF return)

2.3.1 Identity Established: Their identity of all the creditors stood proved in as much the assessee submitted ITR, computations, confirmations with address, PAN and Bank Statements, etc. of all cash creditors. 3.2 Genuineness of transaction established: Genuineness of transaction is also duly and fully established under the facts and circumstances of the case in as much as the subjected amounts from all the nine parties were received through bank only. Admittedly, copies of Bank statements of all these parties were also filed and all the transaction of receipt (and repayment also) are fully dully verifiable. Pertinently the AO never doubted the explanations and never rebutted all the voluminous evidences submitted herein above. Thus, the above factual position is duly admitted by the AO. Further, pertinent fact is that even the assessment of all the 6 creditors stands completed therefore, the source of funds in their hands before providing loans of Rs. 1.47 Crore to the appellant, stands established beyond all doubts, still if the AO doubts the availability in the hands of those creditors, than the AO must have taken actions in the hands of those 6 persons but not in the case of the assessee. We rely on the CIT vs. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC). 3.3 Capacity Proved: During assessment proceedings copies of ITR’s of all the 9 creditors were filed and all of them are financially sound as stated above even the source in their hands before giving loan to the assessee, was proved. Pertinently, when asked above the source in the hands of the 6 creditors, the AO even admitted that there was a transfer entry appearing in the Bank account of the respective creditors (AO Pg. 4 of 9 ). Thus, not only the source but even the source of the source was explained and rather established which the AO completely failed to revert. The AO vaguely alleged but ignored the evidences and testimony of the creditors available on record without any cogent contrary evidence. Even the AO also admitted at page 4 of the order that“ the assessee has submitted confirmations, bank statements in respect of the unsecured loans to the assessee” Accordingly, the assessee fully discharged onus cast upon it. Suspicion howsoever strong cannot take the place of reality as held in the case of Dhakeshwari cotton Mills (1954) 26 ITR 775 (SC).

4. Supporting case laws: 4.1 Aravali Trading Co. v/s ITO 8 DTR 199 (Raj.) held that once the existence of the creditors is proved and such persons own the credits which are found in the books of the assessee, the assessee's onus stand discharged and the latter is not further required to prove the sources from which the creditors could have acquired the money deposited with him and, therefore the addition u/s 68 cannot

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA be sustained in the absence of anything to establish that the sources of the creditors deposits flew from the assessee itself. 4.2 Labhchand Bohra V/s ITO (2008) 8 DTR 44 (Raj.)-Held: cash credit- burden of proof- identity of the creditors established and the confirmed the credit. This discharged the burden of assessee to prove genuineness. However capacity of the lender to advancement money to assessee was not a matter which the assessee could be required to establish and that would amount to calling upon him to establish the source of source. Hence addition cannot be sustained. 4.3 Also refer Kanhaialal jangid vs. ACIT (2008) 8 DTR 38/ ( 217 CTR 354) (RAJ.) held Income – cash credit – Burden of proof – Assessee having filed confirmation from the creditor and having produced the creditor before AO where the creditor affirmed advancement of loan to assessee, no addition under s. 68 could be made in the hands of assessee on the ground that the creditor could not satisfactorily explain the source of loan- Burden on the assessee in such cases does not extend to prove the source of the creditor from where he made the advance to the assessee. 4.4 Latest in CIT v/s Jai Kumar Bakliwal (2014) 101 DTR 377 (Raj.) - held Income—Cash credit—Genuineness—While the assessee has to prove as special knowledge i.e. from where he has received the credit and once he disclosed the source from which he has received money, he must also establish that so far as his transaction with his creditor is concerned, the same is genuine and his creditor had the creditworthiness to advance the loan which the assessee had received when the assessee discharges the burden so placed on him, onus then shifts to the AO, if the AO assesses the said loan as the income of the assessee from undisclosed source he has to prove either by direct evidence or indirect/circumstantial evidence that the money which the assessee received from the creditor actually belong to and was owned by the assessee himself—There is no clinching evidence in the present case nor the AO has been able to prove that the money actually belonged to none but the assessee himself—Action of the AO appears to be based on mere suspicion—Addition under s. 68 was not therefore sustainable. 4.5 Also kindly refer CIT vs Shree Barkha Synthetics 182 CTR 175 (Raj.), CIT v. Orissa Credit Corp. Ltd. 159 ITR 78 (SC), Sarogi Credit Corp. v. CIT 103 ITR 344 (Patna),ACIT v. India Tyre House 72 TTJ 316 (Gau), CIT vs. Heerala Chaganlal 257 ITR 281 (Raj.), CIT vs Ajay Kumar Sharma 259 ITR 240 (Raj.) and Jhalani Timbers v/s CIT (1997) 223 ITR 11 (Gau). Hence the ld CIT(A) rightly deleted the addition of Rs. 1,47,01,596/- u/s 68.’’

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 2.6 We have carefully considered the rival contentions, the order of the authorities below, the material placed on the records in the light of the judicial precedents cited by the parties at bar. It is an admitted fact on record that the assessee filed the confirmations, copies of the ITR, computation of total income showing the complete name, address and PAN , the bank statement of all the six creditors and copies of which were submitted before us also in the paper book filed by the assessee at pages 21-38. All creditors are regular IT assesses. The credits totaling to Rs. 1.47 crs. in all the cases were received through the banking channels only as evidenced from the copies of the bank statements of all these parties and there apart, the source in the hands of those six parties is also verifiable being the receipts on account of the credits in their respective bank accounts through the transfer entries received from M/s Mamta Spinners Pvt. Ltd., M/s Mamta surgical cotton industries and M/s Sanjay Kumar Sandesh Kumar. In the balance sheet the assessee has shown outstanding unsecured loans to the tune of Rs. 1,73,57,329/- and out of which Rs.1,47,01,596/-was raised during the year. The assessee has submitted confirmations, bank statements in respect of these unsecured loans, on perusal of these bank statements it is observed that just before extending the loan to the assessee (there was a transfer entry through which fund was credited in the lender account and later on the fund transfer to the assessee. These transfer entries are again received from the above three concerns .e. M/s Mamta Spinner Pvt. Ltd, M/s Mamta Surgical Cotton Industries and M/s Sanjay Kumar Sandesh Kumar. Reliance is placed in the case of CIT vs. First Point Finance Ltd 286 ITR 477 (Raj.) wherein it is held that once the initial burden has been discharged in respect of the identity of investors, about their existence, and the confirmation from such investors has been obtained, the burden shifts to the Revenue to prove otherwise not only that the invested amount did not belong to the creditors but further it has DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA to prove the said amount belonging to the assessee. In this case, we find that the assessee had been successful in establishing the identity of the creditor, genuineness of the transactions as also the capacity of the creditor. Not only the immediate and direct source was established being from the concerned creditor from the banking channels but also there been sufficient source available in the hands of the respective creditors. It is not case of the revenue that cash amount was deposited in the bank account of the creditor before transfer to the assessee. Once such initial burden was successfully discharged by the assessee, the onus shifted to the revenue to prove that the subjected credits did not belong to the creditors but the said amount belong to the assessee, however, the AO completely failed to discharge the burden shifted to him. The Ld DR failed to point out if anything wrong was committed by the ld. CIT (A). We therefore, find no infirmity in the order of Ld CIT(A), who rightly deleted the addition of the Rs. 1,47,01,596/- made u/s 68 of the act. Therefore, the ground of appeal no.1 taken by the revenue is hereby dismissed.

2.7 As regards the Ground No. 2, the Ld. DR mainly contended that in the facts and circumstances of the case the AO has rightly made the addition. Placing strong reliance on the findings of the AO, she urged the addition made may be restored and the order of the ld. CIT(A) on this aspect be reversed.

2.8 Per contra, the Ld AR strongly opposed the addition made by the AO of Rs. 1.62 crores u/s 69C of the Act and strongly placed reliance on the order of the CIT(A) while deleting the said addition. He submitted that the AO proceeded on a serious misconception of the law of the S. 69C in as much as the entire transaction of receipt of Rs. 3.09 crores from the three parties was fully established in as much as copies of their respective ITR, computation, confirmations and bank statements

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA were submitted. Those parties duly and fully disclosed the transactions in their hands. The AO himself admitted that copies of confirmation and bank statement of these concerns were submitted but doubted the source of repayment made to them. Further reducing the loans taken from the six parties at Rs. 1.7 crore from the total amount of Rs. 3.09 crore taken from the three parties, the balance of Rs.1.62 crore was considered as almost equal to the loss booked by the assessee in the share trading, in absence of any details, as unexplained expenditure u/s 69C. In addition, the Ld. AR also submitted detailed written submissions reading as under: ‘D-GOA- 2: Deletion of Addition of Rs. 1,62,39,154/- made u/s 69 (C) on account of the alleged unexplained expenditure: [AO pg 2-6 pr. 3 CIT (A) Pg 4 pr. 4.3] Facts and Submission are the same as D-GOA-1 above. In addition and without prejudice to those submission it is further submitted that the AO’s allegation that source of repayment of 3.09Cr. was not given tough he admitted that the unsecured loan were partly explained the repayment ( i.e upto 1.47 Cr. ) but that was also not accepted for the reasons stated in assessment order. In the earlier submission, we have already established that assessee fully proved the source and even source of source. Further, allegation that Rs. 1.62 Cr. is almost equal to the loss booked by the assessee in share trading, is nothing but a mere suspicion. It is only a coincidence that the figures matches but no adverse could be drawn by the AO. Further, allegation due to absence of any detail amount of Rs. 1.62 Cr was considered as unexplained expenditure u/s 69C, is nothing but a serious misconception carried by the AO. Firstly, he never doubted the geniuses of the share loss claimed which is fully documented and evidenced and all the transaction were carried out through banking channel as per norms. Secondly, each receipt and outgoing are accounted for and the investment made into India Nivesh Securities Pvt. Ltd. and repayment of the loans taken from the three parties, are all stand established. How and why the provision of section 69C could be applied is beyond the understanding. This addition also being completely misconceived and without fairly perusing the evidences on the record, was rightly deleted by the CIT(A).’’

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 2.9 We have given a thoughtful consideration to the issue in hand. We have carefully gone through the submissions made, rival contentions, material placed on the records and the law applied to the issue in hand. At the outset, we have no agitation in observing that the Ld CIT(A) rightly deleted the impugned additions of Rs. 1.62 crores made by the AO u/s 69C of the Act. It is not disputed that all the transactions have been carried out through banking channels only. Even all the transactions carried out with India Nivesh are through banking channels. The AO has nowhere established that the loss on occasion of share trading was a bogus or sham loss claimed. The attempt of AO to compare the balance amount of 1.62 crore with the share trading loss was an example of mere suspicion without any supporting material. Repayment of Rs. 1.62 crores was made through banking channel. The audited accounts were submitted and the AO completely failed to point out any discrepancy or error in the accounts which were not even rejected by him. The said provisions contemplate that any expenditure not accounted for or there is no source behind incurring such expenditure then only section 69C could be invoked. However, such is not the case of the AO as he failed to point out any expenditure incurred without source or which is unrecorded. Hence provisions of S.69C were wrongly invoked. We find no infirmity in order of the ld. CIT(A) while deleting the said addition. Therefore, the ground of appeal number 2 taken by revenue is hereby dismissed.

3.1 In grounds of appeal No. 3, the revenue is aggrieved by the deletion of the trading addition made upto Rs. 10,90,012/- as against the total addition of Rs.19,42,012/- (Rs. 36,55,119 – Rs. 17,13,107) made by the AO after comparing the gross profit shown by the appellant in the books of accounts (Rs. 17,13,107) and the gross profit worked out by the AO on the basis of sales and purchases shown in the VAT return (Rs. 36,55,119).

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 3.2 In the first appeal, the ld. CIT(A) partly confirmed the addition upto Rs. 8,52,000/-(out of the addition of Rs. 19,42,012/- made by the AO) and the remaining addition of Rs. 10,90,012/- was deleted by holding at para 5.3 of his order as under: “5.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the appellant during the course of assessment proceedings also had furnished a detailed statement reconciling the gross profit, sales and purchases as appearing in the books of the appellant with the purchases, sales and gross profit as appearing in the VAT return filed by the appellant. During the course of appellate proceedings also, the appellant had filed the reconciliation statement reconciling the difference and explaining that there is no difference in the gross profit declared by the appellant in the books of accounts and the gross profit worked out by the AO on the basis of information available in the VAT return. The appellant has filed copies of account of each and every entry appearing in the reconciliation statement and copy of VAT returns. Each entry and explanation furnished by the appellant in the reconciliation statement is verifiable and supported with the books of accounts of the appellant. The AO has made the observation with respect to consignment sales of Rs. 1.00,42,400/- made by the appellant on behalf of M/s Sanjay Rathi HUF and corresponding purchases of Rs. 91,90,400/- that the appellant and Sanjay Rathi HUF are different persons, therefore a consolidated VAT return can not be filed. The appellant has explained that in the books of accounts the appellant has booked only commission income of Rs. 50,212/- earned by the appellant on the consignment sales of Rs. 1,00,42,400/- made by the appellant on behalf of Sanjay Rathi HUF, whereas in the VAT return filled by the appellant, consignment sales of Rs. 1,00,42,400/- and corresponding purchases of Rs. 91,90,400/- have also been shown as part of sales and purchases. The appellant has not produced any evidence to show that sale of Rs. 1,00,42,400/- and purchase of Rs. 91,90,400/- were shown in the books of M/s Sanjay Rathi (HUF). Thus, the contention of the appellant that sale of Rs. 1,00,42,400/- and purchase of Rs. 91,90,400 were made on behalf of M/s Sanjay Rathi (HUF) is not found to be acceptable. Hence, gross profit of Rs. 8,52,000/- (Rs. 1,00,42,400 - Rs. 91,90,400) has to be taxed in the hands of the appellant only. Since all other entries appearing in the reconciliation statement are verifiable from the books of accounts of the appellant, therefore after going through the evidences furnished by the appellant, I am of the considered view that out of the total addition of Rs. 19,42,012/- (Rs. 36,55,119 - Rs. 17,13,107) made by the AO in respect of the difference between the gross profit as appearing in the books of accounts of the appellant and as worked by the AO as per VAT returns, only addition of Rs. 8,52,000/- has to be confirmed. Accordingly, out of the addition of Rs. 19,42,012/- made by the AO, addition of Rs. 8,52,000/- is confirmed and remaining addition of Rs. 10,90,012/- is hereby deleted.”

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA 3.3 Hence, the Department is in appeal. However, the assessee did not challenge the addition partly sustained.

3.4 The Ld. DR mainly contended that in the facts and circumstances of the case the AO has rightly made the addition. Placing strong reliance on the findings of the AO, she urged the addition made may be restored and the order of the ld. CIT(A) on this aspect be reversed.

Before us, detailed reconciliation statements, copy of ledger account of all 3.5 the transactions were submitted before the lower authorities by the Ld AR. He submitted that the AO did not appreciate that (as per the VAT provisions) the sales and purchase made on behalf of the M/s Sanjay Rathi HUF on commission basis, was also required to be shown. Moreover, some of the sales and purchase transactions carried out by the assessee were not considered by the AO and were pointed out by the assessee in the reconciliation statement. After all adjustments, there was no difference as such and neither in the figures of sales purchase nor the net profit, GP etc. The Ld CIT(A) thoroughly verified all transactions. In addition, he filed a detailed written submission which is reproduced here under: ‘D-GOA- 3: Deletion of Addition of Rs. 10,90,012/- on account of shortfall in NP rate: [AO pg 6-8 pr. 4 CIT (A) Pg 11 pr.5.3] Facts: This ground relates to addition of Rs. 19,42,012/- (Rs. 36,55,119 – Rs. 17,13,107) made by the AO in respect of gross profit after comparing the gross profit shown by the appellant in the books of accounts (Rs. 17,13,107) and the gross profit worked out by the AO on the basis of sales and purchases shown in the VAT return (Rs. 36,55,119). The appellant filed details written submission and reproduced at Pg. 8-9 Pr 4.2 of the CIT (A) order. The ld. CIT (A) partly confirmed the addition upto Rs. 8,52,000/- (out of the addition of Rs. 19,42,012/- made by the AO) and the remaining addition of Rs. 10,90,012/- was deleted. Hence, the Department is in appeal Submission

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA Total Sales: Rs. 1,72,95,866 Less: Total Purchases Rs. 1,51,82,958 __________________ Gross Profit Rs. 17,13,107 2. A perusal of the above reconciliation charts (which was submitted before AO also), shall reveal the major reasons behind the difference in amount of the GP declared by the assessee ( Rs. 17,13,107/-) and on the one computed by the AO (Rs.36,55,119) is as under: 2.1. Firstly, the AO has considered the amount of the consignment sale and purchase effected by the assessee not on his behalf but on behalf of the consignor – principal M/s Sanjay Rathi HUF. 2.2 Whereas, the AO has included the amount of VAT in sale and purchase value, however, the assessee has excluded the VAT element to correctly compute sale/purchase value.

2.3 While, computing the purchases and sales both, the AO has ignored some of the parties which the assessee has included in the reconciliation statements All the above explanation, the reconciliation statement were considered by the ld. CIT(A) after due verification of the supporting being the copies of the ledger accounts, etc. Thereafter, concurring with the assessee held that there was no difference as such in the amount of gross profit declared by the assessee and the one computed by the AO. He of course rejected the assesses contention that sales and purchase were effected by him as consignor on behalf of the consignor principal alleging absence of the supporting evidence and the assessee is not in appeal but at the same time this fact will not affect the earlier contentions that there was no difference in gross profit declared by the assessee and computed by AO. In view of the above facts and evidence, the impugned addition were rightly deleted by ld. CIT(A).’’ 3.6 We have given a thoughtful consideration to the issue in hand. We have carefully gone through the submissions made, rival contentions, material placed on the records and the law applied to the issue in hand. It is a matter of record that the assessee has maintained complete books of accounts on day today basis which were subjected to tax audit. It is not denied that there was no adverse remark made

DCIT-CIRCLE, BHILWARA VS SHRI PRAHALAD RAI RATHI, BHILWARA by the Tax Auditor in the tax audit report. The accounts were neither rejected nor S.145 of the Act was invoked. The copies of the VAT return, copies of goods ledger account with purchase sale register were submitted before us which were carefully gone through and it is seen that all the transactions shown in the reconciliation statements are verifiable with reference to the books of accounts, tax audit report and the VAT return. The contention of the assessee that the commission income of Rs. 50,212/- on the sales and purchase made on the behalf of the principal M/s Sanjay Rathi HUF were duly disclosed has not been found fault with or wrong by any of the lower authorities. The Ld CIT(A) has also recorded categorical finding of facts which could not be rebutted by Ld DR during the course of hearing. The assessee has not challenged the part sustenance of the addition so made. After considering the totality of the facts of circumstances, we find no error in the order of the Ld CIT(A). Hence this ground No. 3of the appeal taken by the revenue is also dismissed.