M/S. HIREN SILK MILLS,,SURAT vs. THE INCOME TAX OFFICER, WARD-1(2)(2),, SURAT

�नधा�रतीक�ओरसे /Assessee by Shri Rasesh Shah – CA राज�वक�ओरसे /Revenue by Mrs. Anupam Singla – Sr.DR सुनवाईकीतारीख/ Date of hearing: 13.02.2020 उ�घोषणाक�तार�ख/Pronouncement on: 14.02.2020 आदेश /O R D E R

PER SANDEEP GOSAIN, JM:

Page 2 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 ““1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.21,90,000/- for alleged unexplained Unsecured Loans.

2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making consequential disallowance of Rs. 3,22,637/- on account of interest paid on above Loans.

3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making disallowance of Rs. 12,97,716 being 20% of General Labour wages. Worker Salaries & Freight Expenses on lump sum basis on frivolous grounds.

4. It is therefore prayed that the above addition/disallowance made by the assessing officer may please be deleted.

5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

Page 3 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 6. Ground No.1 & 2: Both the grounds raised by the assessee are inter-related and inter-connected thereby challenging the order of the ld.CIT(A) confirming the actions of the ld.AO in making additions on account of unexplained Unsecured Loans and on account of interest paid on such loans. Therefore, both grounds are being adjudicated by the present consolidated order.

“1) Identity Proved :- The appellant has submitted PAN card as well as Election Card of all the depositors. Even notarized copies of proof of identity have been submitted. Thus, the identities of all the depositors have been proved beyond doubt. So the first requirement of genuine cash credit gets fulfilled. 2) Creditworthiness Proved :- The appellant has submitted PAN card as well as acknowledgment of return of income of all the depositors also. Also these cumulatively prove without an iota of doubt the creditworthiness of all the depositors. So, the second condition of creditworthiness of all the depositors also gets fulfilled. 3) Genuineness proved :- The appellant has received all the deposits by payee’s A/c cheques only. Besides, the appellant has submitted bank passbooks also of all the depositors. Above all, confirmation from all the depositors have also been submitted. So, there is no question of any afterthought or make believe transaction. All the transactions are duly recorded in regular books of accounts & therefore, genuineness thereof is beyond all doubts.” The learned AO has tried to justify his actions on the ground mentioned below which are countered as follows : - Reasons Counter Submission i) The depositor has filed The fact of having given return 4S & hence, it can’t loan is evident & apparent be ascertained as to from cheque entries of whether he has bank passbook and advanced loan or not Confirmations only. No further evidence is necessary ii) Whether amount What difference both the deposited prior to issue of eventualities make to the loan cheque is loan taken creditworthiness of the by him or out of his earlier depositors is difficult to Page 4 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 deposit to some other understand & appreciate. person The depositor being a man of means is proved by ROI etc. Illogical Reason :- The learned AO's allegation that the depositors did not have taxable income or had negligible taxable income is not correct because all of them had taxable incomes. Another reason that, in some cases, transfer/clearing is credited & loan has been advanced on the same day is difficult to digest & understand, as to what is wrong in such transaction. Neither credit by transfer/clearing is a crime or giving loan on the same day is a crime. Next reason of not having made available balance sheets of depositors is also not tenable as they, being covered u/s 44AD/ 44AF of the IT Act, are exempted by the law itself from maintenance of books of accounts. Other observations of the learned AO, being the depositors having no means &being pauper are without any evidence with him & are baseless having no creditability. The learned AO has also disallowed Rs. 12,97,716/- out of aforesaid exps. @ 20% thereof 1) First of all the disallowance has been made without issuing any show cause notice which is patently illegal & liable to be quashed ipso facto as bad in law. 2) The disallowance is in breach of principle of "Audit Alteram Parttem" as no opportunity is afforded to the appellant to explain the so called discrepancies and is liable to be quashed as such. 3) The reason given for disallowance of salary & wages, that no register is maintained thereof & that self made vouchers are made, is not tenable. This is because the law nowhere prescribes that for salary & wages expenses, a register has to be maintained mandatorily & that self made vouchers are not valid. There is no law as such. Besides, the appellant runs factory of manufacturing of art silk grey cloth on power looms. These power looms are run by labours who are illiterate & hail from very low families. 'Almost all of them have migrated from different states all over India, in search for job to became bread winner for their families. To expect their own vouchers, invoices etc. for all these expense from such person is like flying in sweet dreams only. Self made vouchers are the order of the day for such kind of expenses & there is no law making them ineligible or inadmissible piece of evidence. "

Page 6 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 principles laid down under section 68 - Held, yes [In favour of assessee].

Page 9 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 Gujarat High Court that when once the initial onus has already been discharged by the assessee, then in that eventuality it was the duty of the ld.AO to ascertain from the ld.AO’s of those lendors, whether in the respective returns they have shown existence of such amount of money or not. The ld.AO in the present case has not carried out any such exercise as has been laid down by the Hon'ble Gujarat High Court in the case of CIT vs. Ranchhod Jivabhai Nakhava(supra). Thus, the additions made by the ld.AO in the case of assessee are against the principles laid down u/s.68 of the Act. Therefore, considering the totality of the facts and circumstances of the case, we are of the view that no addition could have been made by the ld.AO as in the present case the assessee has already discharged his initial onus. Therefore, the unsecured loan received by the assessee cannot be termed as unexplained. Thus, no addition on that account is sustainable. Since we have deleted the addition on account of unexplained Unsecured Loans, therefore, as a consequence, we also delete the additions made on account of interest paid on the above loan. Consequently, these Ground No.1 & 2 raised by the are allowed.

Page 10 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 14. We have heard both the Counsels and perused the material placed on records, judgments cited by the parties as well as orders passed by the Revenue Authorities. From the records we noticed that the ld.AO had disallowed a sum of Rs.12,97,716/- out of aforesaid expenses @20% without issuing any showcause notice and thus the said disallowance was made in breach of the principles audi alteram partem as no opportunity was afforded to the assessee to explain the so called discrepancies. The only reason for making disallowances was that assessee was not maintaining any register and had only submitted self-made vouchers. In this connection, ld.AR had made specific submissions that assessee runs factory of manufacturing of Art Silk Grey Cloth of power looms and the said power looms are being run by labourers by illiterate labourers under migrated from different states all over India. Thus, according to ld.AR the said labourer cannot be expected to have their own vouchers, invoices etc., For all these expenses, self-made vouchers are the order of the day. Even otherwise, from comparative chart which has been placed on record by the assessee and the same is reproduced below:

Assess 2009-10 2010-11 2011-12 2012-13 ment Year Amount % Amount % Amount % Amount % Turnover 13532981 2078696 3252880 4170895 5 7 0 Leave 33640 0.25% 72777 0.35% 25832 0.08% 38950 0.09% Salary & Wages Worker 2540050 18.77 4046190 19.47 5960966 18.33 6172371 14.80 Salaries % % % % Freight 58397 0.43% 94269 0.45% 111143 0.34% 121410 0 Epenses .29%

Page 11 of 11 Hiren Silk Mills Vs. ITO, Ward-1(2)(2),Surat / A.Y. 2012-13 15. We notice that in this particular year, there are less expenditure, then that occurred in the earlier years. Therefore, keeping in view of the above submissions, we are of the view that there is no justification of making any disallowance on account of expenses incurred by the assessee. When the assessee has substantiated the same by producing documents, therefore, we delete the addition/disallowance, accordingly Ground No.3 is allowed.