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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
consolidated order of Ld. Commissioner of Income Tax (Appeals)-3 (in short ‘Ld.CIT(A)’], Bhopal dated 30.08.2017 which are arising out of the order u/s 143(3) for the Assessment Year 2014-15 and remaining orders Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & 153A r.w.s. 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 15.03.2016 framed by ACIT (Central)-II, Bhopal.
As the issues raised in these appeals are common in nature and relates to same assessee, these were heard together and are being disposed off by this common order for the sake of convenience and brevity.
Brief facts of the case as culled out from the records are that the assessee is a partnership firm engaged in the business of real estate.
Search u/s 132 of the Act was conducted at the business premises of the assessee firm as well as on the premises of other concerns/business associates on 29.01.2014. Notices u/s 153A of the I.T. Act dated 12.09.2014 were issued to the assessee for filing returns for Assessment Years 2008-09 to 2013-14 and in response to that assessee filed return of income on 28.1.2016. For Assessment Year 2008-09 the assessee filed its regular return u/s 139 of the Act on 30.09.2008 showing income of Rs.2,10,410/- but for remaining assessment years return of income were filed for the first time after the issuance of notice u/s 153A of the Act.
Notices u/s 143(2) followed by detailed questionnaire u/s 142(1) were served upon the assessee. Written submissions with supporting 2 Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & documents were filed by the assessee. Consolidated assessment order were passed for Assessment Year 2008-09 to Assessment Year 2011-12 & Assessment Year 2013-14 u/s 153A and for Assessment Year 2014-15 u/s 143(3) of the Act. Ld. A.O. after considering the submissions made by the assessee made following disallowance/additions for various assessment years for which the instant appeal have been filed.
Assessment Year Particulars Amount 2008-09 Disallowance of bank Rs.2,24,326/- interest & charges 2009-10 1. Disallowance of bank interest & Rs.2,11,264/- charges 2. Unexplained Rs.3,00,000/- credits u/s 68 2010-11 1. Disallowance of bank interest & Rs.2,08,819/- charges Rs.21,000/- 2.Unexplained credits u/s 68 2011-12 1.Disallowance of bank interest & Rs.2,29,024/- charges Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
2.Unexplained credits Rs.15,17,000/- u/s 68 2013-14 1.Unexplained credits Rs.50,000/- u/s 68 2014-15 1.Unexplained credits Rs.10,766/- u/s 68
Aggrieved assessee preferred appeal before Ld. CIT(A) but could not succeed. Now the assessee is in appeal before the Tribunal raising following grounds of appeal.
IT(SS)A No.245/Ind/2017 Assessment Year 2008-09
1. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax (A), was not justified in holding that the AO was justified in making addition in the years where the assessment proceedings were not pending and no incriminating material was found during the course of search.
2. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax (A), was not justified in holding that the AO was justified in making disallowance of Rs. 2,24,326/- towards interest paid on loan holding that the loan funds were not utilized for the purpose of the business. 3. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
IT(SS)A No.246/Ind/2017 Assessment Year 2009-10
1. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax (A), was not justified in holding that the AO was justified in making disallowance of Rs. 2,11,264/- towards interest paid on loan holding that the loan funds were not utilized for the purpose of the business.
2. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax CA), was not justified in holding that the AO was justified in making addition of Rs. 3,00,000/- treating the recovery of excess withdrawal of capital as unexplained. 3. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
IT(SS)A No.247/Ind/2017 Assessment Year 2010-11
1. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax (A), was not justified in holding that the AO was justified in making disallowance of Rs. 2,08,819/- towards interest paid on loan holding that the loan funds were not utilized for the purpose of the business.
2. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax CA), was not justified in holding that the AO was justified in making addition of Rs.21,000/- treating the recovery of excess withdrawal of capital as unexplained. 3. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
IT(SS)A No.248/Ind/2017 Assessment Year 2011-12
That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax (A), was not justified in holding that the AO was Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & Rs. 2,29,024/- towards interest paid on loan holding that the loan funds were not utilized for the purpose of the business.
2. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax CA), was not justified in holding that the AO was justified in making addition of Rs.215,17,000/- treating the recovery of excess withdrawal of capital as unexplained.
3. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
IT(SS)A No.249/Ind/2017 Assessment Year 2013-14
1. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax CA), was not justified in holding that the AO was justified in making addition of Rs.50,000/- treating the recovery of excess withdrawal of capital as unexplained.
2. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
1. That on the facts and in the circumstances of the case of the assessee the Ld Commissioner of Income Tax CA), was not justified in holding that the AO was justified in making addition of Rs.10,766/- treating the recovery of excess withdrawal of capital as unexplained.
2. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
We will first take the assessee’s appeal for Assessment Year 2008- 2009.
Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
At the outset Ld. Counsel for the assessee referring to Ground No.1 of the appeal submitted that no incriminating material was found during the course of search and the addition were made only on the basis of information received during assessment proceedings. Assessee’s case is squarely covered by the decision of this Co-ordinate Bench in the case of Sainath Coloniers V ACIT (2019) 35 ITJ 77 (Trib. Indore) in IT(SS) A Nos.
289 to 291/Ind/2017 dated 28.02.2019.
Per contra Ld. Departmental Representative vehemently argued and supporting the order of lower authorities.
We have heard rival contentions and perused the records placed before us and gone through the decision referred and relied by the Ld. Counsel for the assessee. For Assessment Year 2008-09 assessee has raised two grounds of appeal. Ground No.1 challenges the addition on the ground that no incriminating material was found during the course of search and addition has been made merely on the basis of information called during the course of assessment proceedings. Through Ground No.2 the impugned addition of Rs.2,24,326/- is challenged with regard to disallowance of interest paid on loan holding that the loan funds were not utilized for the business purposes.
Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
We find that the Co-ordinate Bench while adjudicating similar issue in the case of Sainath Coloniers V ACIT (2019) 35 ITJ 77 (Trib. Indore) following the judgment of Hon’ble High Court of Delhi in the case of CIT V/s Kabul Chawla (2016) 380 ITR 573 (Del) observed as follows;
“We therefore in the given facts and circumstances of the case and respectfully following the judgments referred and relied by the Ld. Counsel for the assessee are of the considered view that no addition/disallowance was called for Assessment Year 2008-09 to 2010-11 as no incriminating material was found during the course of search at the premises of the assessee as the time limit of issuance of notice u/s 143(2) of the Act stood expired much before the date of conducting search u/s 132 of the Act”.
Examining facts of the instant appeal in the light of decision of Co- ordinate Bench, we find that the assessee filed regular return of income u/s 139 of the Act for Assessment Year on 30.09.2008. Assessee’s case was not selected for scrutiny, as notice u/s 143(2) of the Act was not issued to the assessee on or before 30.09.2009. Search was conducted on 29.1.2014. Impugned addition at Rs.2,24,326/- is purely based on information called during the course of search proceedings. In this situation the assessment for Assessment Year 2008-09 is to be treated as non abated assessments for which additions could be made only on the 8 Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & basis of incriminating material found during the course of search.
Therefore in the given facts and circumstances of the case and respectfully following the decision of the co-ordinate bench referred above, we direct the Ld. A.O to delete the disallowance of Rs.2,24,326/- and accordingly allow Ground No.1 and consequentially Ground No. 2 of the assessee’s appeal for 2008-09 raised in IT(SS)No.245/Ind/2017.
Now we take up the appeals relating to Assessment Years 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 wherein following three issues are under consideration:-
(i) No addition is called for as no incriminating material found during the course of search.
(ii) Disallowance of interest paid on bank loan for not utilizing loan for the business purpose.
(iii) Un Explained recovery of excess withdrawal of capital by partners
As the issues are common we will adjudicate Ground No,.1,2&3 raised for Assessment Year 2009-10 and our decision on adjudication of Grounds for Assessment Year 2009-10 will apply mutandis mutandis to Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & Assessment Years 2009- 10, 2010-11, 2011-12, 2013-14 and 2014-15.
As regards Ground No.1 raised for Assessment Year 2009-10 claiming that no addition was called for as no incriminating material was found during the course of search u/s 132 of the Act, we fail to find any merit in this ground because the assessee has not filed regular return of income u/s 139 of the Act. Return of income for Assessment Year 2009- 10 was filed on 28.1.2016 i.e. after the date of search u/s 132 of the Act.
Therefore assessment year 2009-10 cannot be treated as non abated assessment and Ld. A.O was well within his powers u/s 153A r.w.s.
143(3) of the Act to carry out regular assessment proceedings for Assessment Year 2009-10 and for making additions if any and it was not necessary to prove the nexus with the incriminating material found during the course of search. Therefore the assessee fails to succeed in this legal ground raised in Ground No.1 and the same stands dismissed.
As facts and issues remains the same for Assessment Years 2010-11, 2011-12, 2013-14 and 2014-15 similar Ground No.1 raised in these four appeals also stands dismissed.
Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
Now we take up Ground No.2 for Assessment Year 2009-10 raising disallowance of interest paid on loan for the alleged non utilization of the loan for the business purposes.
Ld. Counsel for the assessee prayed for deleting the addition on the basis of submission made before Ld. CIT(A) page 1 to 10 of the paper book and also submitted that the assessee firm is not carrying any business activity from Assessment Year 2009-10 onwards. No interest expenses have been claimed against revenue, therefore no disallowance for the interest paid was called for.
Ld. Departmental Representative vehemently argued and supporting the orders of lower authorities.
We have heard rival contentions and perused the records placed before us. The common issue raised in Ground No.2 relates to disallowance of interest paid on loan. There is no dispute to the fact that the assessee stopped its business activity from 1.4.2008 onwards.
Closing stock as on 31.3.2008 was NIL. Assessee firm took loan from Krishna Mercantile Bank during financial year 2005-06. Copy of the audited balance as on 31.3.2005 and 31.03.2006 placed at Page 25 to Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & 266 of the paper book shows that the bank loan was taken during the Financial Year 2005-06. As on 31.3.2006 there was a credit balance of the partners totalling to Rs.52,58,564/- which clearly establishes that the bank loan taken during the financial year 2005-06 was utilised for business purposes and was not withdrawn by the partners for their personal purposes. So the nexus of the application of the bank loan to the business activity is established beyond doubt. After taking loan the assessee has incurred loss consistently and from 1.4.2008 onwards no business activity was carried out.
Ld. A.O had observed that the secured loan from Krishna Mercantile Bank is appearing from Assessment Year 2008-09 to 2011-12 and during Assessment Year 2011-12 this loan has been repaid by the assessee firm by taking amount from the partners. Before this repayment the partners were having negative capital balance. Ld. A.O without examining the audited balance sheet for Assessment Year 2004-05 and 2005-06 took a view that the secured loan has been utilized for advancing the money to the partners and not for the business purposes of the firm and no interest was charged to the partners on their negative capital. On the basis of these observations, Ld. A.O disallowed the bank interest and bank Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & Profit & Loss Account.
We are of the considered view that the bank loan taken during the financial year 2005-06 was utilised only for the business purposes and was not utilised by the partners for their personal purpose by withdrawing it from the firms bank account. Therefore the allegation of the lower authorities that the bank loan was not utilised for business purposes has no legs to stand. Further the assessee has incurred consistent losses. No business activity is carried out since 1.4.2008.
Bank loan was outstanding. For repayment of bank loan the partners have brought additional capital to repay the loan. In these facts and circumstances, we find no justification in the action of Ld. A.O disallowing the interest paid on loan to the bank completely ignoring the fact that during the year under appeal assessee is having NIL revenue and it is not the case of the revenue authorities that the assessee has claimed the interest to reduce its tax liability. We accordingly delete the disallowance of Rs.2,11,264/- for Assessment Year 2009-10 and allow this issue raised in Ground No.2 of assessee’s appeal. Similar issue is raised in Ground No.2 for 2010-11 & 2011-12 and in view of our above finding we delete the disallowance of Rs.2,08,819/- and Rs. 2,29,024/- Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & Ground No.2 of Assessee’s appeal for 2010-11 & 2011-12 also.
Now we take up the third issue for addition towards unexplained recovery of excess withdrawal of capital at Rs.3,00,000/- for Assessment Year 2009-10 against which the assessee is in appeal raising Ground No.3. Brief facts relating to this issue are that there was an addition in the capital account of Rs.3,00,000/- which was given by the partner Mr. Manoj Jain as part of its capital contribution. Ld. A.O treated the alleged credit of Rs.3,00,000/- as unexplained u/s 68 of the Act by holding that the assessee failed to explain the cash credit. Ld. CIT(A) confirmed the view. Now the assessee is in appeal before the Tribunal. Ld. Counsel referring to the written submissions filed before Ld. CIT(A) submitted that the alleged cash credit is from known source i.e. partner of the firm.
Copy of the confirmation, Income Tax Return of the partner is filed. Mr. Manoj Jain has other sources of income and having sufficient balance in bank to pay to the assessee firm, therefore no addition was called for u/s 68 of the Act.
Per contra Departmental Representative vehemently argued and supporting the orders of both the lower authorities.
Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
We have heard rival contentions and perused the records placed before us. Addition u/s 68 of the Act has been made for unexplained cash credit for the capital addition by partners to the assessee firm.
We observe that Mr. Manoj Jain has given Rs.3,00,000/- Rs.21,000/-, Rs.6,65,000/-, Rs.50,000/- and Rs.10,766/- as capital contribution for Assessment Year 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15. Identity of the partner is not disputed. Payments were made to the firm through account payee cheques. Income Tax returns of Mr. Manoj Jain is placed on record. Mr.Manoj Jain has confirmed the amounts which have been given to the assessee firm as part of its partner’s capital contribution. For Assessment Year 2009-2010 to 2011- 12 Mr. Manoj Jain has shown total taxable income of Rs.1,47,890/-, Rs.9,56,710/- and Rs.17,98,230/- respectively. Bank statement on page 74-75 of the paper book shows that sufficient bank balance was available before the respective transaction of the capital contribution. No major amount of cash has been deposited before the issuance of the cheque to the assessee firm. Ld. A.O has not conducted any enquiry from Mr. Manoj Jain before making the alleged addition. The alleged amounts of capital contribution is for repaying the bank loan outstanding in the Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & name of assessee firm. We therefore are satisfied that the assessee has successfully proved the identity, genuineness and creditworthiness of the capital contribution received from the partner Mr. Manoj Jain. Therefore no addition was called for u/s 68 of the Act for Rs. 3,00,000/- Rs.21,000/-, Rs.6,65,000/-, Rs.50,000/- and Rs.10,766/-.
As regards capital contribution of Rs.8,52,000/- during assessment year 2011-12 by another partner Mr. Manish Rawatiya there can be no dispute about the identity of the partner Mr. Manish Rawatiya and the genuineness of the transaction which was entered into for repaying the bank loan outstanding on the firm. Now the last limb for us to examine is the creditworthiness of the partner Mr. Manish Rawatiya who has paid a sum of Rs.8,52,000/-. Ld. Counsel for the assessee has contended that no books of accounts were prepared therefore provisions of Section 68 of the Act are not applicable. We however find no merit in this contention because the partnership firm is required to maintain the books of accounts. Balance sheet and capital account has been furnished. The capital contribution by the partner Mr. Manish Rawatiya for Rs.8,52,000/- during Assessment Year 2011-12 has to pass through certain entries in which entry is made for receiving the money in bank by Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & which the bank account is debited and partners capital account is credited. Now asking about the creditworthiness of the partner for investing capital of Rs.8,52,000/- is well within the powers of the Ld. A.O.
The assessee is bound to satisfy the Ld. A.O by placing various evidences to prove the creditworthiness of the partner. In the instant case with regard to the amount received from Mr. Manish Rawatiya for Rs.8,52,000/- assessee failed to file confirmation letter, income tax return, bank statement and proof of source of income. However, Ld. A.O has not conducted any enquiry into the matter by issuing notices to Shri Manish Rawatiya calling for the necessary information to prove the creditworthiness.
In these given facts and circumstances and in the interest of justice assessee deserves one more opportunity to prove the creditworthiness of the partner Mr. Manish Rawatiya giving capital contribution of Rs.8,52,000/-. We therefore direct the assessee to place necessary evidences to prove the creditworthiness of Mr. Manish Rawatiya before the Ld. A.O and in case Ld. A.O is not satisfied with the documents placed by the assessee then he may issue necessary notices to Mr. Manish Rawatiya calling for the information. After conducting these Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 & Ld. A.O is still not satisfied then he will be at liberty to make addition as per the provisions of law. However our this direction shall not restrain the assessee in filing appeal before the higher appellate authority against the adverse action if any taken by the Ld. A.O. To conclude, we direct the Ld. A.O to delete the addition u/s 68 of the Act made for the amount of Rs. 3,00,000/- Rs.21,000/-, Rs.6,65,000/-, Rs.50,000/- and Rs.10,766/- received from the partner Mr. Manoj Jain for Assessment Years 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 whereas with regard to addition of Rs.8,52,000/- u/s 68 of the Act for the unexplained credit received from another partner Mr. Manish Rawatiya the issue is set aside to the file of Ld. A.O for necessary adjudication as
per our direction mentioned herein above. Needless to mention that proper opportunity of being heard may be given to the assessee.
In the result Ground No.3 of the assessee’s Appeal for Assessment Years 2009-10, 2010-11, 2013-14 and 2014-15 are allowed and for Assessment Year 2011-12 is partly allowed for statistical purposes.
In the result appeals of the assessee for 2008-09, 2009-10,2010-11, 2013-14 and 2014-15 are allowed and for Assessment Year 2011-12 are partly allowed for statistical purposes. 18 Shree Sai Builders IT(SS)A No.245 to 249/Ind/2017 &
The order pronounced in the open Court on 30.05.2019.