V.VEERASEKAR,CHENNAI vs. ITO NON CORPORATE WARD-2(2), CHENNAI

This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-2, Chennai in dated 12.04.2019. The assessment was framed by the Income Tax Officer, Non-Corporate Ward 2(2), Chennai for the assessment year 2015-16 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 15.12.2017.

The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO by making addition of non-existing liability as unexplained cash credit u/s.68 of the Act as well as u/s.41(1) of the Act as cessation of liability. For this, assessee has raised various grounds but relevant ground is Ground Nos.2, 3 & 4 as under:- 2. The learned Commissioner of Income Tax (Appeals)-2 erred in sustaining the addition made on account of non existing liability as unexplained credits when there was no such liability existing as per the books of accounts.

The learned Commissioner of Income Tax (Appeals) – 2 erred in not understanding the nature of transaction undertaken with the alleged party. 4. The learned Commissioner of Income Tax (Appeals) – 2 erred in not appreciating the confirmation and return of income submitted by Mrs. Kavitha for the relevant assessment year. 3. Brief facts are that the assessee is engaged in the business of money lending. The assessee filed his return of income for the relevant assessment year 2015-16 on 29.08.2015 and accordingly, assessee’s case was selected for scrutiny assessment under CASS under the limited scrutiny category i.e., for purchase of property. The number of facts discussed by the AO in his order at para 8 & 9 are that the AO while going through the ledger account of M/s. Trimex, it is noted that in the account of Shri V. Veerasekar, the assessee, an amount of Rs.2,02,80,000/- including opening balance Rs.96.40 lakhs is payable to M/s. Trimex. He noted that during the relevant financial year 2014-15 relevant to this assessment year 2015-16, an amount of Rs.1,06,40,000/- was received by the assessee. He noted that this amount was utilized by the assessee for purchase of property as loan from Smt. Kavitha who is proprietor of M/s. K.K. Enterprises. He noted that the assessee could not adduce any evidence that the said amount was really received from M/s. Trimex and no return of income was filed by this company for assessment year 2014-15 to 2016-17 and no cross verification of genuineness of the above loan amount is possible and hence, he added this amount of Rs.1,06,40,000/- received during the year as unexplained income u/s.68 of the Act. The AO also noted that this amount to due to M/s. Trimex could not be treated as no longer payable as the company is non-existent and also treated the same as cessation of liability u/s.41(1) of the Act. For this AO recorded his findings in para 9 & 10 as under:- “9. In the absence of any proof or evidence, that the said amount was really received from M/s. Trimex, also no return of income was filed by the company M/s.Trimex for the assessment year 14-15 to 16-17 to cross verify the genuineness of the above loan amount, which was given to the assessee, the company is not existing in the address given in the return of income, I have no other way except to conclude that the amount of Rs.1,06,40,000/- received during the assessment year, and the same is treated as unexplained income of the assessee u/s 68 of the Act.

As already discussed in the foregoing paras, the amount due to M/s.Trimex could also be treated as no longer repayable as the company is non-existent, coupled with no confirmation letter received from the said company, the amount to be repayable could also be treated as cessation of liability and accordingly also disallowable u/s 41(1) of the Act.” Aggrieved assessee preferred appeal before CIT(A).

The CIT(A) also confirmed the action of AO first of all for the reason that Trimex Resource Pvt. Ltd., is not filing returns of income and hence, it is not proved that the same amount received on account of sum payable to Smt. Kavitha, who is wife of the assessee. According to him, in such circumstances independent verification cannot be done even though, there is confirmation from Smt. Kavitha. Hence, the CIT(A) stated that the assessee failed to prove the actual source of funds for purchase of property which were accumulated funds from movable source for which a sum of Rs.1,06,40,000/- was from Smt. Kavitha who after taking the loan from Trimex Resources Pvt. Ltd. The CIT(A) also confirmed the addition u/s.68 as well as u/s.41(1) of the Act and also he invoked the provisions of section 28(iv) of the Act by relying on the decision of Hon’ble Supreme Court in the case of CIT vs. T.V.Sundaram Iyengar & Sons Ltd., (SC) 222 ITR 344. Aggrieved, assessee came in appeal before Tribunal.