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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI SANJAY GARG & SHRI GIRISH AGRAWAL
Present for: Appellant by : Shri S K. Tulsiyan, Advocate, Ms. Puja Somani, CA & Ms. Neetu Singh, Advocate Respondent by : Shri P. P. Barman, Addl. CIT, Sr. DR Date of Hearing : 18.10.2023 Date of Pronouncement : 30.11.2023 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A)-7, Kolkata-21 vide order no. 170/CIT(A)-7/Ward-27(1)- Hal/Kol/16-17 dated 16.01.2019 passed against the assessment order by ITO, Ward-27(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.12.2016, for AY 2014- 15.
The assessee has filed modified grounds of appeal
in substitution of ground of appeal originally filed along with the Memorandum of Appeal in Form No.
36. Assessee claims that no new or additional ground has been raised in these modified grounds of appeal.
Sri Ramkrishna Ghosh, AY 2014-15 3. From the perusal of these grounds of appeal
, we note that there are two major issues, first being addition of Rs.42,10,000/- as unexplained cash credit u/s. 68 of the Act in respect of unsecurd loan taken by the assessee from Shri Arun Kumar Bhowmick and Smt. Bandana Bera Bhowmick and the second issue is in respect of disallowing deduction of Rs.43,36,221/- u/s. 54F claimed as deduction against sale of immovable property for Rs.45,00,000/- for construction of new residential house. On the above two issues, assessee has raised nine grounds which are not reproduced for the sake of brevity.
4. Brief facts of the case are that assessee filed his return of income on 30.11.2014 reporting nil income. Assessee is in receipt of income from petrol pump in the name and style of M/s. Superior Service Station. In the course of assessment proceedings, Ld. AO noted that assessee has received unsecured loans of Rs.42,10,000/- from the following two parties : (a) Shri Arun Kumar Bhowmik - Rs.12,10,000/- (b) Bandana Bera Bhowmik - Rs.30,00,000/- 4.1. Assessee submitted their bank statements, confirmation letters along with PAN and complete postal address. It was also submitted that entire loans were taken through banking channels. Copy of returns filed by the lenders for AY 2014-15 were also furnished. Ld. AO did not dispute the identity of both the parties but held that their creditworthiness and genuineness of the transactions have not been proved and thus, made the addition u/s. 68. On the second issue, Ld. AO observed that assessee had sold two immovable properties and earned capital gains of Rs.43,36,221/- against which claimed a deduction of the same amount u/s. 54F of the Act. In order to substantiate the claim, assessee submitted the list of expenses Sri Ramkrishna Ghosh, AY 2014-15 incurred on various items for the construction of residential building. However, Ld. AO disallowed the claim by holding that assessee could not substantiate expenses incurred for the construction of residential house. Aggrieved, assessee went in appeal before the Ld. CIT(A). 4.2. In the first appellate proceedings, matter was remanded to the file of Ld. AO. In the course of remand proceedings, Shri Arun Kumar Bhowmick appeared before the Ld. AO for himself and on behalf of his sister Smt. Bandana Bera Bhowmick. His statement on oath was recorded wherein he confirmed giving of loan of Rs.12,10,000/- to the assessee. He also furnished a copy of his balance sheet for the year ended on 31.03.2014 along with income tax filing records for past few years. In the same proceedings, he also submitted a statement on oath by Smt. Bandana Bera Bhowmick, who had also confirmed giving of loan of Rs.30,00,000/- to the assessee. Even balance sheet as on 31.03.2014 and income tax filing records for past few years were furnished. Shri Arun Kumar Bhowmick explained the source of loan by submitting that he had received gifts from his father and Smt. Bandana Bera Bhowmick had received gifts from her husband who is a non-resident Indian. According to him, all these receipt of gifts and giving of loans are duly recorded in their respective balance sheet.
5. Based on remand proceedings, Ld. CIT(A) held that assessee is able to prove the identity and genuineness of the loan transaction but he failed to prove the creditworthiness of the loan creditors and thus, confirmed the addition made by the Ld. AO. 5.1. In respect of disallowance of deduction u/s. 54F in the remand proceedings, ld. AO had issued notices u/s. 133(6) of the Act to all the 11 parties from whom assessee had purchased various materials used in construction of residential building. Ld. AO noted that two parties viz., Sumit Marbles and Madan Trading denied having transactions with the assessee. Ld. AO further observed that major Sri Ramkrishna Ghosh, AY 2014-15 part of the bills submitted by the assessee did not contain any VAT/TIN/PAN details. He further noted that parties from whom assessee had purchased are from far places and do not justify buying materials from such far places which requires additional transportation cost. Assessee furnished a rejoinder to the remand report and explained the observations made by Ld. AO. It was stated that nothing was supplied to the assessee on the denial of transactions by the two parties. 5.2. Assessee contended that physical existence of residential building clearly establishes that a residential house has been constructed. On the observation that materials have been purchased from far places and that certain bills do not contain VAT details, it was submitted that it is a prerogative of the assessee to buy material from suppliers and places of his choice which gives him cost effectiveness and that there could be various reasons for not having VAT, one of which could be that their annual sales are below the threshold of turnover to have VAT registration. According to the assessee, such general observations in no way demonstrate that claim of the assessee is bogus or sham when physical existence of the residential building is beyond doubt. Ld. CIT(A) despite these explanations, confirmed the disallowance made by the Ld. AO. Aggrieved, assessee is in appeal before the Tribunal.
6. Before us, Ld. Counsel for the assessee placed on record a written submission along with paper book containing 133 pages and a compilation of case law to substantiate the claim of assessee . Before us, Ld. Counsel reiterated the above statement of facts which are on record. He pointed out that identity and genuineness of the transaction in respect of unsecured loans is established and accepted by the Ld. CIT(A). For the creditworthiness of the loans, Ld. Counsel submitted that both the loan creditors had explained the sources of Sri Ramkrishna Ghosh, AY 2014-15 funds along with relevant documentary evidence. He submitted that section 68 of the Act does not require examination of source of source in case of transaction of loan. He pointed to the amendment made in section 68 which empowers the AO to examine the source of source in case of share application money/share capital which is effective from 01.04.2013 and does not apply to loan transactions. Further, the proviso to sec. 68 is applicable for company assessee and not the individual assessee. He also referred to the amendment made by the Finance Act, 2022 effective from 01.04.2023 which is also applicable for AY 2023-24, relating to providing source of source in the case of loan or borrowing.
6.1. In the present appeal, the impugned assessment year involved is AY 2014-15. Despite this position of law, assessee has explained the source of source along with relevant documentary evidence. In the case of Shri Arun Kumar Bhowmick he had received the gift from his father Shri Madhusudan Bhowmick and in the case of Smt. Bandan Bera Bhowmick, she has received from her husband Shri Subhranil Bera. Shri Madhusudan Bera is engaged in the business of grocery shop and transport business in the name and style of ‘Falcon’. He gave cash gift to his son out of his own source of income. In the case of Shri Subhranil Bera, he is a merchant Navy officer and has given gift out of his own source.
6.2. To buttress his contentions on the burden casted on the assessee to explain source of source, ld. Counsel for the assessee placed reliance on the decision of Hon’ble High Court of Bombay in the case of Gaurav Triyugi Singh Vs. ITO [2020] 121 taxmann.com 86 (Bom.) wherein it was held that where assessee had received unsecured loan of certain amount from an individual, since loan amount was received by assessee through cheque and there was no dispute as to identity of creditor and genuineness of transaction and Sri Ramkrishna Ghosh, AY 2014-15 revenue could not prove or bring any material to impeach source of credit, no addition under section 68 could be made on account of this loan amount. Relevant para 14 and 15 of the judgment are extracted below: “14. In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e., he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur.
In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur i. e. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur.”
6.3. On the second issue, ld. Counsel reiterated that complete details of construction along with bills and vouchers were filed before the authorities below. These have been examined even in the remand proceeding and no specific discrepancy has been pointed out by the Ld. AO except for general observations which in no way establish that assessee has not constructed the residential building when its physical existence is beyond doubt.
Per contra, Ld. Sr. DR submitted that assessee has furnished only part of the bank statement of the lenders. Further, he pointed that amount of Rs. 15,00,000/- are not verifiable and creditworthiness of the lenders is not established because they are not regular filers of income tax returns. In the rejoinder, ld. Counsel pointed that Rs. 15,00,000/- have been deposited in the bank account of Federal Sri Ramkrishna Ghosh, AY 2014-15 Bank, Bombay in the name and style of Superior Service Station of which assessee is a proprietor. He referred to the bank statement of the proprietary concern of the assessee to point out the credit of the said amount.
We have heard the rival contentions and perused the material available on record. We note that Ld. CIT(A) has recorded the fact of identity and genuineness of the transaction which is not in dispute. In respect of creditworthiness of the lenders, ld. Counsel has effectively demonstrated the source of source for availability of funds with the lenders to lend it to the assessee. We note that requirement of establishing source of source in the case of loan transaction has been inserted in sec. 68 by Finance Act, 2022 which is effective from AY 2023-24. Ld. Counsel has placed on record all the relevant documentary evidence to establish the creditworthiness of the lenders by explaining the source of source for the impugned credits. Considering the overall factual matrix and by placing reliance on the judicial precedents referred above, we delete the addition made by the Ld. AO in respect of unsecured loans received by the assessee from the two parties, totalling to Rs.42,10,000/-. Ground no. 1(a) to 1(d) in this respect are allowed. 8.1. On the second issue relating to disallowance of claim u/s. 54F of the Act, physical existence of the residential building constructed by the assessee is not in dispute. The authorities below have disallowed the claim on the premise of certain general observations which have been narrated above and are not repeated for the sake of brevity. Assessee has disclosed all the expenses incurred for the construction of residential house which are duly accounted in his books of account and which have been subjected to audit. According to the Ld. Counsel, there are no adverse views or qualification by the auditor in this respect. Assessee has placed on record all the evidences before Sri Ramkrishna Ghosh, AY 2014-15 the authorities below. The same are contained in the paper book placed on record. 8.2. Summary of expenses incurred by the assessee for residential house building construction as submitted by the assessee is reproduced as under: