POOJA TYRE MARKETING,HIMATNAGAR vs. THE INCOME TAX OFFICER, S.K. WARD-3, HIMATNAGAR

आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’SMC’’BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No.253/AHD/2016 �नधा�रण वष�/Asstt. Year: 2012-2013 Pooja Tyre Marketing, Income Tax Officer, Aakar Complex, S.K Ward 3, Vs. Himatnagar. Opp. Vyapar Bhawan, Himatnagar-383 001.

PAN: AABFA9200G

(Applicant) (Respondent) : Assessee by Shri S.N. Divetia, A.R Revenue by : Shri Apoorva Bhardwaj, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 06/12/2018 घोषणा क� तार�ख /Date of Pronouncement: 01/01/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)- 2, Ahmedabad[CIT(A) in short] vide appeal no.CIT(A)-2/340/SK Wd.3. HMT/2014-15, dated 08/12/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 08/01/2015 relevant to Assessment Year (AY) 2012-13.

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‘’[1] The Ld. CIT (A) has grievously erred in law and or on facts in confirming the addition of Rs. 16,00,000/- of the two parties viz. Shri Jayantibhai K. Patel of Rs.7,00,000/- & Shri Alamkhan S. Pathan of Rs.9,00,000/- as unexplained cash credit u/s. 68 of the I. T. Act. [2] The Ld. CIT (A) has also grievously erred in law or on facts in not considering fully and properly the submissions made and evidences produced by the appellant and also the remand report submitted by the Ld. AO with regard to impugned additions. [3] The order passed by the Ld. CIT (A) dated 08.12.2015 confirming the - additions made by the Ld. AO is wholly illegal, unlawful and against the principles of natural justice. [4] That in the facts and circumstances as well as in law, the Ld. CIT (A) ought not to have upheld the above said additions. [5] It is therefore prayed that the addition of Rs. 16,00,000/- upheld by the Ld. CIT(A) may kindly be deleted.’’

Name & PAN Credit Debit Balance Address of Depositors A.S Pathan ASSPP9091L 900000 0 900000 Jayantbhai K. ALTPP8906C 1200000 500000 1636824 Patel

4.1 The AO to verify the genuineness of loans as discussed above issued notices u/s. 133(6) of the Act to both the parties.

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4.2 Shri Jayantibhai K Patel vide letter dated 20/11/2014 has confirmed the loan given to the assessee. Shri Jayantibhai K Patel claimed that his source of income is from two Heavy Goods Vehicles and the Agriculture Activities. Shri Jayantibhai K Patel in support of his claim furnished the details of his PAN.

4.3 However, the AO found that Shri Jayantibhai K Patel has not filed its return of income, there was also no details furnish for the income generated from the goods vehicle and agriculture activities.

4.4 As per the AO the bank statement does not reflect the capacity of the parties extending the loan to the assessee.

4.5 Similarly, there was a confirmation letter filed by Shri A.S Pathan vide letter dated 23/11/2014, in response to the notice u/s.133(6) of the Act. Shri A.S. Pathan claimed to have given deposits to the assessee outside of the sale proceed of the heavy goods vehicle.

4.6 However, the AO observed that there were no details furnish by Shri A.S Pathan regarding the sale of trucks, R.C. Book, etc. Shri A.S. Pathan also claimed to have income from the source of agriculture activities. But it was noticed that the Income-tax return has not been filed by the party.

4.7 In view of the above the AO doubted the creditworthiness of the parties who have provided loans to the assessee.

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4.8 Accordingly the AO treated the impugned loan as unexplained cash credit u/s.68 of the Act and added to the total income of the assessee.

a) In the case of Shri Jayantbhai K Patel i) There were two heavy goods vehicle and 9 acres of agriculture land owned by Shri Jayantibhai K Patel. ii) Entire transaction of loan received from Shri Jayantibhai K Patel was carried out through Banking Channel. iii) The return of income was not filed as the income was below the taxable limit. b) In case of Shri A.S. Pathan i) Shri A.S. Pathan advanced the amount of loan out of sale proceeds of the truck. Shri A.S. Pathan has sold the truck of Rs.9 lacs during the year which was deposited with the bank. Accordingly, Shri A.S. Pathan extended the loan to the assessee out of the sale proceed of the truck. ii) The assessee because of the above submitted that all the conditions specified u/s.68 of the Act have been duly complied with. Therefore there cannot be any addition on account of unexplained cash credit u/s 68 of the Act. 6. However, the Ld.CIT (A) disregarded the contentions of the assessee by observing that the assessee did not prove the creditworthiness of the loan parties. Accordingly, the Ld.CIT (A) confirmed the order of the AO.

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8.1 The Ld.AR further submitted that the assessee is liable to prove the source of credit in its books of accounts and it is not under the obligation to prove the source of source of the cash credit in the hands of the parties.

8.2 The entire loan transaction was carried through the banking channel. The Ld.AR in respect of his claim drew our attention on the bank statement of the parties which are placed on pages 14 to 26 and 29 to 30 of the paper book.

8.3 The Ld. AR also filed the ledger copies of the loan parties, ownership of land and confirmation of sales trucks which are placed in the paper book.

Name & PAN Credit Debit Balance Address of Depositors A.S Pathan ASSPP9091L 900000 0 900000 Jayantbhai K. ALTPP8906C 1200000 500000 1636824 Patel

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10.1 Regarding the loan taken by the assessee from Jayantilal K Patel, we note that the assessee on such loan has incurred interest expense amounting to Rs. 1,19,137/- in the year under consideration. There was no disallowance made either by the AO or by the Ld.CIT (A) in respect of such interest expenses claimed by the assessee. The copy of the ledger of the Jayantilal K Patel in the books of the assessee is placed on page no. 11 of the paper book where the assessee showed the expense of interest. In such circumstances, we are of the view that there cannot be any addition of the loan received by the assessee from the party under section 68 of the Act. It is because the genuineness of the interest expense corresponding to such loan has not been doubted/ questioned by the authorities below.

10.2 Similarly, there was the repayment of the loan amount by the assessee which has been accepted by the Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.”

10.3 Besides the above we also note that the assessee in respect of such loan has filed the bank statement of the party, confirmation of the ledger from the party, declaration cum affidavit of the party, PAN of the party and details of ownership of agricultural land to justify the agriculture income in the hands of the party.

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10.4 From the above, it is clear that the assessee has discharged his initial burden by furnishing the necessary details to the AO during the assessment proceedings. Thus the creditworthiness of the lenders cannot be doubted/ denied without rejecting the submission of the assessee with the cogent reasons. Thus the creditworthiness cannot be denied merely on the ground that the lender has not filed his return of income in the given facts & circumstances.

10.5 The assessee on the strength of the above documents has justified the source of money deposited in his bank account. Accordingly, the assessee is not accountable to justify the source of money in the hands of the lenders. In this regard, we place our reliance on the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: “It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723.”

10.6 There was no documentary evidence brought on record suggesting that the money advanced as a loan by the lender is representing the undisclosed income of the assessee. Once the assessee has filed the necessary documents in support of the cash credits to the AO during the assessment proceedings the onus shifts on the AO to prove otherwise. In this regard, we place our reliance on the order of this Hon’ble Mumbai ITAT in case of ITO Vs. Anant shelters (P) Ltd. Reported in 20 taxmann.com 153 wherein it was held as under: “ In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount

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appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and creditworthiness of the lender onus of proof shifts to the revenue.”

10.7 But the AO has not brought any iota of evidence to prove the submission of the assessee wrong or any kind of defect thereunder.

10.8 We also note that the onus on the assessee is limited to the extent of justifying the source of cash credit in its hands. As such the assessee is not liable to explain the source of cash in the hands of the lenders. In this regard we find support and guidance from the judgment of Hon’ble Kerala High Court in the case of Namichand Kothari reported in 264 ITR 254 wherein it was held as under: “While section 106 of the Indian Evidence Act limits the onus of the assessee to extent to his proving the source from where he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor’s) sub-creditors and prove, as a result of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the duty of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub- creditors nor is it the burden of the assessee to prove that the sub-creditor had the

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creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be judged, vis-a-vis, the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transaction, which took place between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee” Since it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced in the form of loan to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be treated, as a corollary, as the income from undisclosed source of the assessee himself.

11.1 We also note that the party has sold the truck in the year under consideration and the sale proceeds were advanced as loan to the assessee. The assessee in support of his claim has furnished the truck number, but the AO has not verified the same from the office of the RTO.

11.2 It is also pertinent to note that there was no payment of the interest by the assessee on such loan, but that cannot be the reason for treating the loan as an unexplained cash credit.

11.3 We have already given a detailed finding of the loan taken by the assessee from Jayantilal K Patel, and the same finding will also be applied concerning the loan taken by the assessee from Shri Alamkhan Pathan.

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11.4 Because of the above, we are of the opinion that no addition under section 68 of the Act can be made in the given facts and circumstances. Hence we set aside the order of Ld.CIT (A) and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 01/01/2019 at Ahmedabad.

-Sd- -Sd- (MS MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 01/01/2019 manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad