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Income Tax Appellate Tribunal, ALLAHABAD BENCH ‘SMC’ ALLAHABAD
Before: SHRI.VIJAY PAL RAO
O R D E R PER SHRI VIJAY PAL RAO, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order dated 08.01.2018 of ld. CIT(A), Lucknow for the A.Y. 2014-15. The assessee has raised the following grounds:
1. BECAUSE the Id. "CIT(A)" has erred in law and on facts in upholding the addition of Rs. 5,45,000/- made by the "Assessing Officer" on account of unsecured loan obtained from one Smt. Sharda Singh, by holding the same as bogus.
2. BECAUSE looking to the material and information available on record, Id. "CIT(A)" should have deleted the addition of Rs.
5,45,000/- on this ground alone that the loan was not received by the "appellant" during the year under appeal but the same was brought forward in the book? of account as opening balance in the year under appeal.
3. BECAUSE while making/upholding the addition of Rs. 5,45,000/- the authorities below have failed to appreciate the documentary evidences furnished by the "appellant" in the assessment / appellate proceedings.
4. BECAUSE while making/sustaining addition of Rs. 5,45,000/- the authorities below failed to appreciate the settled position of law that the "appellant" was not expected to prove the source of source and in this view of the matter, addition sustained by the "CIT(A)" is not justified.
BECAUSE in any case, the identity and creditworthiness of loan creditor and genuineness of loan transaction had been duly examined and accepted in the year of receipt of loan in A.Y. 2013- 14 under section 143(3), the authorities below were not correct in holding that the genuineness, creditworthiness and identity of loan creditor could not be proved.
BECAUSE the “CIT(A)” was not justified to sustain the adhoc disallowance of expenses to the extent of 5% as against 25% made by the Assessing Officer.”
Ground Nos. 1 to 5 regarding the addition of Rs.5,45,000/- made by the Assessing Officer u/s. 68 of the Act. The assessee is a partnership firm and filed its return of income on 30.11.2014 declared total income of Rs.3,87,250/-. During the assessment proceedings, the Assessing Officer noted that the assessee has shown unsecured loan from the persons, who have not filed the return of income. The Assessing Officer issued notice u/s. 142(1) and call the assessee to furnish the details of sundry creditors gross receipt and details of various expenses. The Assessing Officer has noted that despite number of opportunities given the assessee has not furnished the requisite information and details in respect of the sundry creditors/ loan as well as expenses. The Assessing Officer has also issued notice u/s. 133(6) to various persons from whom unsecured loan were claimed. From the replies, it was found that most of the persons are return filer except one Smt. Sharda Singh who is household lady and claimed to have given a sum of Rs.5,45,000/-. The Assessing Officer accepted the unsecured loan in respect of the other persons except the amount of Rs.5,45,000/- shown from Smt. Sharda Singh. The Assessing Officer held that the loan creditor has no source of income and therefore, the creditworthiness of the creditor is not genuine. Accordingly, the Assessing Officer made the addition of the said amount of Rs.5,45,000/- as bogus sundry creditor. The assessee challenged the action of the Assessing Officer before the CIT(A) but could not succeed.
Before the Tribunal, the ld. AR of the assessee has submitted that the unsecured loan from Smt. Sharda Singh was not taken during the year under consideration but it is brought forward balance from the preceding year. He has referred to ledger account of Smt. Sharda Singh and submitted that this amount is shown as opening balance and the same was repaid during the year under consideration. He has also referred to the audit report and submitted that the auditor has also not raised any objection regarding the fact that this loan was taken in the preceding year and it was only an opening balance as on 01.04.2013. Thus, the ld. A.R. of the assessee has submitted that the addition made by the Assessing Officer and confirmed by the CIT(A) is not genuine. The ld. CIT(A) has confirmed the addition without considering the explanation of the assessee as well as the relevant record to show that loan amount of Rs.5,45,000/- is an opening balance and therefore cannot be treated as unexplained cash credit or bogus credit for the year under consideration. He has also referred to the assessment order passed u/s. 143(3) for the AY 2013-14 and submitted that the Assessing Officer has not doubted the genuineness of this loan, which was taken during the said year.
4. On the other hand, ld. DR has submitted that the assessee has not explained any point before the Assessing Officer or before the CIT(A) despite various opportunities were given by the Assessing Officer. The Assessing Officer has recorded this fact in the assessment order that a number of opportunities were given to the assessee to explain the sundry creditors shown in the balance sheet but the assessee has not explained. Thus, the explanation of the assessee that this is an opening balance brought forward from the preceding year requires verification and examination. He has relied upon the orders of the authorities below.
5. I have considered the rival submissions as well as material available on record. The case of the assessee was selected for limited scrutiny to examine the sundry creditors and the Assessing Officer has called upon the assessee to furnish the details and explanation. The Assessing Officer has recorded in the assessment order that despite several opportunities the assessee has not furnished any explanation or filed any detail regarding the loan creditors. The Assessing Officer conducted an enquiry by issuing notice u/s. 133 (6) to the various loan creditors. From the reply, the Assessing Officer noted that all the other loan creditors are income tax return filer except one Smt. Sharda Singh who has claimed to have given Rs.5,45,000/- to assessee. The ld. CIT(A) confirmed this addition of Rs.5,45,000/- on the ground that assessee has failed to prove identity, creditworthiness and genuineness of the transaction. The assessee has explained the fact that this loan was taken in the preceding year and it is only an opening balance as on 01.04.2013. This fact has not been examined by the ld. CIT(A) while confirming the addition. If the loan was introduced in the preceding year and the Assessing Officer while passing the assessment order u/s. 143(3) for the AY 2013-14 has not doubted the genuineness of the loan then the same cannot be held as a bogus sundry creditor for the year under consideration. It is noted that neither the Assessing Officer nor the CIT(A) has verified and consider this explanation of the assessee that this amount is only a brought forward amount and shown as opening balance and no new loan was taken from Smt. Sharda Singh during the year under consideration. Hence, this issue is remanded to the record of the ld. CIT(A) for limited purpose to verify this fact from the record whether this amount was only an opening balance and brought forward from the preceding year and then decide the issue afresh.
6. Ground No.6 is regarding disallowances of expenses confirmed by the CIT(A) to the extent of 5% as against 25% made by the Assessing Officer. The Assessing Officer has made a disallowance of 25% of various expenses on the ground that the assessee has failed to furnish any satisfactory explanation for the downfall of the GP and NP during the year under consideration as well as supporting evidence of the expenses. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) who has restricted the disallowance to 5% as against 25%.
Before the Tribunal, the ld. AR of the assessee has submitted that the Assessing Officer has made adhoc disallowance without questioning the genuineness of the expenses and the purpose of incurring the expenses for business. Therefore, the adhoc disallowance made by the Assessing Officer without any basis and confirmation of the said disallowance by the ld. CIT(A) to the extent of 5% is not justified. In support of this contention, he has relied upon the decision of the coordinate Bench of this Tribunal dated 13.07.2006 in the case of ITO vs. Dr. Mahendra Kumar Agarwal in ITA No. 460-455/Alld/2004.
On the other hand, ld. DR has submitted that when the assessee has failed to produce any supporting evidence for the expenditure debited to the P&L account then the Assessing Officer is justified to make disallowance of certain percentage, which was restricted by the CIT(A) to 5% which is very reasonable and proper. He has relied upon the orders of ld. CIT(A) and submitted that the ld. CIT(A) after considering the facts and circumstances of the case has restricted the addition to 5% which is very nominal to Rs.33,401/-.
I have considered the rival submissions and careful perused the orders of the authorities below. The Assessing Officer has made an adhoc disallowance of 25% of various expenses in para 4 as under:
From perusal of the accounts of the assessee it is noticed that in the preceding year assessee has shown GP @4.42% & NP @0.47% on the gross turnover of Rs. 8,29,10,764/-in the year under consideration/ The assessee was provided a number of opportunities to substantiate the GP as well as NP as well as the income shown in the ITR and to explain the downfall if any, but he failed to furnish any satisfactory explanation for the same. On examination of the bills/vouchers in respect of expenses under different heads it is noticed that the expenses under the following heads were not found fully vouched. i) Shop & office rent Rs. 2,88,000/- ii) Office & shop expenses Rs. 94,603/- iii) Staff welfare expenses Rs. 1,91,660/-
iv) Vehicle running & maintenance Rs. 61,480/- v) Travelling & conveyance expenses Rs.32,279/- Total Rs. 6,68,022/- Therefore, a reasonable amount @25% of the expenses under the aforementioned heads totaling to Rs.6,68,022/- which comes to Rs.1,67,005/- is being disallowed and added to the total income of the assessee for the year under Consideration. (Addition: Rs. 1,67,005/-)”
Though the Assessing Officer in Para 2 of the assessment order has pointed out that the assessee was provided a number of opportunities to furnish the details in respect of various expenses but the assessee failed to produce these supporting bills and vouchers. However, in the concluding part of Para 4 of the assessment order, the Assessing Officer has disallowed 25% of these expenses on adhoc basis on the ground that there is a reduction in the GP and NP for the year under consideration and the assessee has failed to furnish any satisfactory explanation. It is pertinent to note that the decrease in the G.P. and N.P. can be a triggering point for verification of the claim of expenses booked by the assessee but the reduction in the G.P. and N.P. cannot be ipso facto a ground for making disallowance of expenses without verifying the genuineness of the claim. Since the assessee has not produced the supporting bills and vouchers which can be verified by the Assessing Officer, whether the claim of the assessee is genuine or not therefore, a reasonable percentage of disallowance is not prohibited under law. From the details of the expenditure, it is noted that the expenditure under the head shop and office rent cannot be doubted as it is a recurring expenditure and the amount debited in the P&L account cannot be disallowed on percentage basis. Accordingly, the disallowance of 5% as confirmed by the ld. CIT(A) on the shop and office rent is deleted. So far as the disallowance of 5% in respect of the other expenditure is concerned since, the assessee has failed to produce the supporting bills and vouchers to establish that the said expenditure has been incurred wholly and exclusively for the business purpose the 5% disallowance is reasonable and proper. Accordingly, the disallowance made by the ld. CIT(A) is restricted to the expenses other than shop and office rent.
In the result, appeal filed by the assessee is partly allowed.
(Order pronounced on 21/01/2021 at Allahabad in the open Court through Video Conferencing)