COMMISSIONER OF INCOME TAX-II, LUDHIANA vs. M/S AMAR CHAND & SONS, LUDHIANA

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ITA/243/2011HC Punjab & HaryanaPHHC01095569201125 November 2011Author: MR. JUSTICE HEMANT GUPTA,MR. JUSTICE GURMEET SINGH SANDHAWALIA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the submission of the revenue was untenable. The court reasoned that an assessee cannot be expected to prove the creditworthiness of its creditors. It is the AO of the creditor who can add such amounts to the creditor's income if not satisfied with their explanation. The judgment noted that the amounts were received through banking channels. Therefore, it was for the respective AOs of the creditors, who were income tax assesses, to question the transactions. In the absence of any evidence to the contrary, the AO could not have treated the amounts as belonging to the assessee from undisclosed sources. Consequently, no substantial question of law arose for consideration, and the appeal was dismissed as lacking merit.

What were the facts?

The Revenue, Commissioner of Income Tax-II, Ludhiana, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 18.10.2010 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench. The appeal pertains to assessment year 2007-08. The assessee, M/s Amar Chand and Sons, a partnership firm engaged in trading and manufacturing, had taken unsecured loans totaling Rs.72,86,519/- from 18 persons. The Assessing Officer (AO) was not satisfied with the creditworthiness and genuineness of transactions for 15 creditors, leading to an addition of Rs.33,11,510/-. The Commissioner of Income Tax (Appeals) had deleted this addition, and the ITAT upheld that deletion. The AO noted that the creditors were existing income tax payees who had filed returns and explained the mode of advancement and their sources, which were accepted by their respective AOs.

What were the issues?

1. Whether on the facts and in law, the ITAT was legally correct in dismissing the department's appeal by holding that the assessee discharged the onus to prove the genuineness of the transaction and creditworthiness of the creditors regarding credits introduced by them, despite the department's contention that the commodity profits earned by the creditors and introduced to the assessee firm were bogus and the assessee could not explain the source of credits to the AO's satisfaction? (Section 68) 2. Whether on the facts and in law, the ITAT was legally correct in dismissing the department's appeal by holding that there was no evidence to prove that the amounts introduced as credits in the assessee firm's account by the creditors (earned as commodity profits) actually belonged to the assessee firm, and therefore, could not be treated as unexplained under Section 68? Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The creditworthiness and genuineness of transactions were doubted, and the assessee failed to explain the source of creditors' credits to the AO's satisfaction. The revenue argued that the commodity profits introduced were bogus.

Which sections of the Income-tax Act were involved?

Section 260A,Section 68

AI-generated summary — verify with the full judgment below

Income-tax Appeal No.243

of 2011

-1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income-tax Appeal No.243

of 2011

Date of decision: 25.11.2011 The Commissioner of Income Tax-II, Ludhiana ...Appellant Versus M/s Amar Chand and sons ...Respondent CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Ms. Savita Saxena, Sr. Standing Counsel for the appellant. **** G.S.SANDHAWALIA, J. The present appeal is filed by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) against order dated 18.10.2010 passed in ITA No.983/CHANDI/2010 for the assessment year 2007-08 by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh. The revenue has contended that the following substantial questions of law arise in the facts of the case:- “1. Whether on the facts and in law, the Hon'ble ITAT was legally correct in dismissing the appeal of the department by holding that the assessee discharged the onus to prove the genuineness of the transaction and credit worthiness of the creditors regarding credits introduced by the creditors though it was proved beyond doubt that the amounts of commodity profits earned by the creditors and which were introduced by Income-tax Appeal No.243

of 2011

-2- **** the creditors to the assessee firm were bogus and the assessee could not explain the source of credits to the satisfaction of the A.O.?

2.

Whether on the facts and in law, the Hon'ble ITAT was legally correct in dismissing the appeal of the department by holding that there was no evidence on record to prove that the amounts introduced as credits in the account of assessee firm introduced by the creditors (earned as commodity profits) actually belonged to the assessee firm and, therefore, the same cannot be treated as unexplained under Section 68?” The department is aggrieved that in appeal the Commissioner of Income Tax (Appeals) has deleted the addition of Rs.33,11,510/- and the said order has been upheld by the Tribunal. It is the case of the department that the respondent-assessee is a partnership firm engaged in the business of trading in iron & steel and cycle parts and manufacturing cycle parts, which had taken unsecured loans from 18 persons totalling to Rs.72,86,519/- which was noticed by the Assessing Officer on 31.3.2007. Accordingly, the details of the creditors were called for and examined by the Assessing Officer and confirmation regarding the income tax particulars and mode of advancement of loans were taken into account. The Assessing Officer, however, came to the conclusion that though the identity of the creditors was proved but he was not satisfied with the credit worthiness and genuineness of the transactions of 15 creditors and, thus, made the addition of Rs.33,11,510/-. It was, however, come on record that the creditors are existing income tax payees, who have filed their returns showing the mode of advance and their sources and such affairs have been accepted by their respective Assessing Officers.

Income-tax Appeal No.243

of 2011

-3- **** Learned counsel for the revenue has urged that the credit worthiness and genuineness of the transactions have been doubted and the assessee could not explain the source of the credits of his creditors to the satisfaction of the Assessing Officer. We feel that the submission is absolutely untenable as the assessee cannot be asked to show credit worthiness of his creditors and the Assessing Officer of that creditor can add the said amount to the income of that creditor if he is not satisfied by the explanation given and it is not possible for the assessee to prove the sources of the creditors. It has also been recorded as a matter of fact that the amounts have been received by way of banking channel and, therefore, it was for the Assessing Officers of the said creditors to question the said creditors, who were income tax assesses and in the absence of any evidence, the Assessing Officer could not have treated the said amount as belonging to the assessee from his undisclosed sources. Thus, from the above facts and circumstances, it will be clear that no question of law arises for consideration by this Court as contended by the Revenue and the present appeal is dismissed being bereft of any merit.

(G.S.SANDHAWALIA)

Judge November 25, 2011 (HEMANT GUPTA) Pka

Judge

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