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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM:
Both the appeals filed by assessee are against separate orders of CIT(A), Kolhapur, dated 17.12.2013 and CIT(A), Pune-11, dated 27.11.2015 relating to assessment year 2008-09 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
Both the appeals filed by different assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issues, we make reference to the facts and issues in ITA No.436/PUN/2014.
The assessee in ITA No.436/PUN/2014 has raised the following ground of appeal:-
The learned Commissioner (Appeals) erred on facts and in law in confirming the addition of Rs.80 lacs under section 68 of The Income Tax Act, 1961 as unexplained deposits.
The issue raised in the present appeal is against addition of ₹ 80 lakhs under section 68 of the Act as unexplained deposits.
Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income declaring total income of ₹ 26,390/-. The assessee was engaged in the business of distributing spare parts of MICO on wholesale basis in Kolhapur, Sangli and Ratnagiri districts. Search action under section 132 of the Act was conducted. The case of assessee was taken up for scrutiny. The Assessing Officer noted that Shri Nitin
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Patil was key person in the partnership firms i.e. M/s. Ghatge Patil & Sons, M/s. Hem Kiran Diesels and M/s. V.J. & Sons, Kolhapur. On going through the audit reports of above said three entities for assessment year 2008-09, it was seen that during the year, total unsecured loans to the tune of ₹ 2,52,50,000/- were brought in the names of 60 persons. In the case of assessee, there was introduction of unsecured loan of ₹ 80 lakhs from 22 persons during the year. The assessee was asked to prove the identity of the persons, genuineness of transaction and creditworthiness of the said persons. In response thereto, the assessee filed confirmations from the said 22 persons. The Assessing Officer issued Commission under section 131(1)(d) of the Act to the Assessing Officers who were having jurisdiction over the depositors, to conduct enquiries about their identity, creditworthiness and genuineness of transactions. Different Assessing Officers furnished their reports in this regard and the said reports in respect of different persons are summarized and tabulated by the Assessing Officer at pages 2 and 3 of assessment order. Meanwhile, the account details were called for from the bank accounts of lenders. The details received from the bank revealed that all the lenders were having joint accounts with persons numbering two and the same persons were joint account holders. In one of the cases i.e. Suman Ashok Agarwal, scrutiny assessment proceedings for assessment year 2008-09 were in progress in the Ward in which the assessee was being assessed. The said person denied having filed her return of income for assessment year 2008-09 and she also denied having opened any bank account which was filed by the assessee in support. She also denied knowing two persons who were mentioned as joint account holders i.e. Dharmchand C. Shah and Hitesh Dharamchand Shah. The Assessing Officer then recorded statement of Shri Hitesh Dharamchand Shah under section 131 of the Act on 18.12.2010, who admitted that the bank accounts were actually being operated
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by him and the entire tax liability with regard to transactions in the said bank account rested on him. The Assessing Officer in such scenario, issued summons to lenders but none of the lenders attended on 26.11.2010 in spite of summons being served in some cases and in some cases, the addresses mentioned were non-existent. So, this was the finding; first in respect of bank accounts in respect of five persons and then few other persons. The assessee was intimated about the aforesaid findings and he was also confronted with all the confirmations and receipts were in the same format and was asked to explain. The assessee was also confronted with majorly the bank accounts were common as most of the bank accounts were in Kapol Bank, Mogaveera Bank and Excellent Co-operative Bank at Kandivli and most of the lenders were living in western suburbs of Mumbai. The assessee was further confronted information of lenders, who were having income, which was below the taxable limits or was marginally taxable and thus, have doubtful creditworthiness. The assessee was also informed that the loan was advanced out of money credited to the bank account on the same or immediately preceding date. Further, no interest was also given on the aforesaid loans. The assessee regarding genuineness of depositors pointed out that identity of persons was proved and even the genuineness of transaction was proved and regarding marginal income or below taxable limit income of one year, the assessee pointed out that the same could not be the sole criteria for judging the capacity of any person. The Assessing Officer vide para 4.12 concludes by holding that three firms had raised unsecured loans of ₹ 2.52 crores from 60 persons and all these persons except two persons were residing in western suburbs of Mumbai. The balance two persons were residing at Ahmedabad, but all of them had issued cheques from the banks which were at Mumbai. All persons had advanced the amounts out of accounts in which money was credited on the same or immediately
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preceding date and where the assessee firm had failed to furnish evidence of their creditworthiness, merely because the amount was advanced out of bank accounts could not be accepted. Another aspect which was noted by the Assessing Officer at para 4.13 of assessment order was that Shri Nitin Patil was MD of Ghatge Patil Automobiles Ltd. and during the course of search proceedings, it was found that the said company had sold open plot for ₹ 6.80 crores but had only shown sum of ₹ 4.11 crores in the sale deed. The on- money of ₹ 2.69 crores was routed through 60 persons to three partnership firms which was fully controlled by Shri Nitin Patil. In such scenario, the Assessing Officer held that where the assessee had failed to prove the creditworthiness of the lenders, unsecured loan of ₹ 80 lakhs credited in the books of account was not satisfactorily explained and hence, had to be added under section 68 of the Act.
The CIT(A) noted that the submissions advanced during appellate proceedings were same as explanation given before the Assessing Officer. The assessee had not furnished any other evidence establishing the creditworthiness of depositors and even the genuineness of transactions. In the absence of the same, addition made by Assessing Officer was upheld.
The issue raised in ITA No.131/PUN/2016 is against addition of ₹ 67,50,000/- made under section 68 of the Act.
Before deciding the issue, reference is also made to the facts in Hem Kiran Diesels.
Briefly, in the facts of the case, the assessee was carrying on the business of distributing spare parts of MICO on wholesale basis and was also
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doing workshop activity for automobile diesel pumps and four wheelers. For the year under consideration, the assessee had furnished return of income declaring total income of ₹ 25,87,730/-. Search and seizure action under section 132(1) of the Act was carried out in the case of Shri Nitil Patil. Shri Nitin Patil was the key person in firms M/s. Ghatge Patil & Sons, M/s. Hem Kiran Diesels and M/s. V.J. & Sons, Kolhapur. In the case of assessee, during the year under, it had introduced unsecured loans of ₹ 67,50,000/- from 14 persons. The Assessing Officer asked the assessee to prove identity of the persons, genuineness of the transactions and their creditworthiness. In response to the same, confirmations of 14 persons were filed. The Assessing Officer issued Commission under section 131(1)(d) of the Act to the respective Assessing Officers who were having jurisdiction over the depositors to conduct enquiry about the identity of the persons, genuineness of transactions and creditworthiness of lenders. The said information has been collated by the Assessing Officer in respect of each of the lenders and is reproduced under para 4.2 of the assessment order. In respect of nine creditors i.e. serial Nos.6 to 14, the Assessing Officer has given a comment that the bank extracts filed by the said persons reflect that the respective bank accounts were credited with certain amount and the same amount was given as loan on the next day. It may be pointed out that all these persons were based in Thane or Mumbai and the assessee was operating from Kolhapur. Another point which was found by the Assessing Officer was that all the bank accounts were having same two or other persons as joint account holders, namely Dharmchand C. Shah and Hitesh Dharamchand Shah. The enquiries had revealed that the bank account was held jointly by three persons and the first name was of lender and the second and third persons were the same i.e. Dharmchand C. Shah and Hitesh Dharamchand Shah. Shri Hitesh Shah, the joint account holder was traced and
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his statement was recorded under section 131 of the Act on 08.12.2010, wherein he admitted that bank account was actually being operated by him and the entire tax liability with regard to transactions in the said bank rests on him. In the case of one Mrs. Suman A. Agarwal, whose scrutiny proceedings were in progress, she denied having filed her return of income for assessment year 2008-09 and the bank account mentioned in the return did not belong to her. The bank account in Mogaveera Bank and Excellent Co-operative Bank at Kandivli did not belong to her. The Assessing Officer sent Summons to all the parties. However, none of the persons attended and in some cases, the addresses mentioned were found to be non-existing. The assessee was confronted with all the above said findings and he was intimated that the language, date of confirmation, presentation, etc. were identical in case of all the lenders. It was also informed that in all the cases, where Commission was issued, most of the lenders were living in western suburbs of Mumbai and the bank accounts were common in so far as most of the bank accounts were in Kapol Bank, Mogaveera Bank and Excellent Co-operative Bank at Kandivli. Further, the lenders had given loans from their bank accounts by cheque by 11.01.2008 and 12.01.2008. Further, all the lenders were having income below taxable limits or marginally taxable income and their creditworthiness to lend the amounts ranging from ₹ 3 lakhs to ₹ 5.75 lakhs without any interest, to the assessee was doubtful. The assessee was also intimated that the loans were advanced out of money credited to the bank accounts on the same or immediately preceding day. The assessee in reply contended that it had used the amount to pay bank loans. It was further contended that the identity and genuineness of transactions has been proved and regarding marginal income and below taxable income, had nothing to do with the creditworthiness as the income of only one year could not be the sole criteria for judging the capacity of
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the persons. The Assessing Officer further noted that in three firms, unsecured loans of ₹ 2,52,50,000/- were brought from 60 persons and all the persons except two persons were residing in western suburbs of Mumbai i.e. Malad, Bhayandar, Kandivli, etc. and the other two persons were residing in Ahmedabad, but were issuing cheques from the banks which were at Mumbai. Another point which was considered by the Assessing Officer was that Shri Nitin Patil was the MD of Ghatge Patil Automobiles Ltd. and during the course of search proceedings, it was found that the company had sold open plot for ₹ 6.80 crores but the company had shown only ₹ 4.11 crores as the sale consideration in the sale deed. The Assessing Officer thus, observed that on- money of ₹ 2.69 crores was routed through above 60 persons to three firms, which were fully controlled by Shri Nitil Patil. In such circumstances, it was held that where the assessee has failed to satisfactorily prove the nature and source of the amount credited in its books of account, then the same is to be added under section 68 of the Act at ₹ 67,50,000/-.
The CIT(A) after considering submissions of the assessee and observations of the Assessing Officer in the assessment order vide para 8 notes the contention of assessee that the amount of unsecured loans were utilized to repay the loan taken from Ratnakar Bank, Rajarampur, Kolhapur, which had turned NPA in the year 2005-06. The assessee has also raised contention that in respect of genuineness of deposits, the said deposits were raised and repaid through account payee cheque. Further, interest on the loans was provided for financial year 2009-10 and TDS was also made thereon. The assessee was allowed another opportunity to prove the creditworthiness of depositors by producing depositors and other relevant evidences before the Assessing Officer, but nothing was produced by assessee. The CIT(A) relying
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on the decision in the case of Shri V.J. & Sons, confirmed the addition of ₹ 67,50,000/-.
Both the assessee are in appeal against respective orders of CIT(A).
With regard to V.J & Sons, the learned Authorized Representative for the assessee pointed out that the amount was received through banking channels and all the persons were assessed to tax. He further pointed out that the said amount was repaid vide cheques on different dates and no addition has been made on account of aforesaid repayments. He then relied on the decision of Pune Bench of Tribunal in Shri Dilip Motilal Chordiya Vs. ITO in ITA No.761/PUN/2017, relating to assessment year 2012-13, order dated 15.12.2017, wherein in similar circumstances, first the addition was made on account of loan received from creditors, thereafter the same was repaid and the matter was set aside to the file of Assessing Officer to investigate the correctness of repayments. In such scenario, he stated that the issue be set aside to the file of Assessing Officer.
With regard to Hem Kiran Diesels, the learned Authorized Representative for the assessee pointed out that same arguments are being made as in the case of V J & Sons, wherein the addition was made on account of cash credits totaling ₹ 67,50,000/-. He pointed out that in the said case also, the amounts were repaid through cheques and no addition has been made in the hands of assessee on this count.
The learned Departmental Representative for the Revenue strongly opposed the proposition raised by assessee. He drew our attention to the list
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of repayments, wherein majorly the amounts were repaid in financial year 2009- 10, wherein the assessment order was passed on 31.12.2010 and the CIT(A)’s order was passed on 17.12.2013. He stressed that the Assessing Officer had carried out extensive exercise in the case and even one creditor had pointed out that she had not advanced any loan nor opened bank account. In some cases even the persons were not found at the given addresses and in such scenario, merely because the amount has been repaid by way of cheques, does not establish the identity of the persons, their creditworthiness and genuineness of transactions.
We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against addition made under section 68 of the Act. The addition in the hands of assessee has been made at ₹ 80 lakhs. However, during the course of search, information was collected and thereafter, the case of assessee was picked up for scrutiny and it was noted by the Assessing Officer that one Shri Nitin Patil was the key person in three firms i.e. M/s. Ghatge Patil & Sons, M/s. Hem Kiran Diesels and M/s. V.J. & Sons, Kolhapur. All the three entities during the year under consideration had raised total unsecured loan of ₹ 2,52,50,000/- in the names of 60 persons, wherein the addition in the hands of V J & Sons was of ₹ 80 lakhs and in the hands of Hem Kiran Diesels of ₹ 67,50,000/-. The assessee claimed before the Assessing Officer that all these persons were assessed to tax and had furnished confirmations from the said parties and also bank accounts. The Assessing Officer examined the evidence filed by assessee and found the same to be wanting. The assessee could not establish the identity of many persons since (a) notices sent to them were returned back as the persons were not available on the addresses, and (b) Summons issued to them were not complied with by
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the respective creditors. Then coming to creditworthiness, though the assessee claims them to be assessed to tax but the enquiries revealed that the said persons had negligible income which did not justify the amount of loan advanced by them. The assessee claims that the said amounts were not out of current income but also out of savings of assessee. The examination of details also revealed that the assessee was operating from Kolhapur but the loans have been received from the persons who are residing in western suburbs of Mumbai and were operating through three major bank accounts i.e. Kapol Bank, Mogaveera Bank and Excellent Co-operative Bank at Kandivli. In respect of said bank accounts along with lenders, joint operation was carried out by two persons i.e. Dharmchand C. Shah and Hitesh Dharamchand Shah. The Assessing Officer at page 4 has enlisted names of all the lenders whose bank accounts were jointly held with the said persons. Another person whose name was not mentioned in the list is Suman Ashok Agarwal, who was being assessed with the Assessing Officer incharge of assessment of assessee and she in her statement denied having advanced any loan to the assessee and even denied having opened any bank account in Mogaveera Bank, Kandivli. She also denied that two persons had any connection with her i.e. joint account holder Hitesh Dharamchand Shah. The Assessing Officer recorded statement under section 131 of the Act of Shri Hitesh Dharamchand Shah on 08.12.2010, wherein he admitted that the bank account was actually being operated by him and entire tax liability with regard to transactions in those bank account rested on him. Further, the Assessing Officer also points out that in respect of Summons being served in some cases, none of the lenders attended and in some cases, addresses were non-existed and in some cases, the lenders never stayed in those premises.
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Another important factor which was noted by the Assessing Officer was that cheques which were issued from the respective bank accounts were out of money credited in the said bank accounts on the same or immediately preceding date. One more aspect which needs to be kept in mind is that the amount was received by assessee and no interest was paid to persons who had meager sources of income.
Now, the learned Authorized Representative for the assessee has come out with an explanation that all these amounts have been repaid and he has filed tabulated chart in this regard. Now, let us look at the evidence filed by assessee by way of confirmations from the respective parties. The first loan creditor in the list is Dharmista H. Makwane. The perusal of confirmation placed at page 77 of Paper Book reflects that it is executed on 02.01.2008 but the date of receiving the loan is not clear, only cheque number is given. Even in the list filed by the assessee, date of cheque is missing. Then confirmation of repayment is dated 31.08.2009, but the date of issue of cheque is again missing; though clearing date of cheque no doubt, is 03.09.2009. Similar is the case in respect of all the other depositors. The second one Usha M. Shah stays in Chawl No.5, Gandhinagar, Charch Road, Moti Nagar, Bhayander (W), Thane has issued cheque from bank account in Kandiwali, Mumbai to the assessee having registered office in Kolhapur. The date of confirmation is 02.01.2008 for advancing the loan but the date of cheque is missing. Similarly, in respect of repayment, receipt is dated 31.08.2009 but the date of cheque issued by assessee is missing. The cheque is issued from Kolhapur branch of ICICI bank and has been cleared on 02.09.2009 but whether it has been deposited in the bank account of assessee at Kandiwali, Mumbai or not, no evidence in this regard has been filed. The next person is Mahesh B. Shah and
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Usha M. Shah, both of them have advanced sum of ₹ 3,50,000 x 2 = ₹ 7,00,000/-, which is unexplainable, in view of the status of said persons. Similarly, in respect of Mohanlal M. Shah and Dinesh D. Mehata, who have independently given ₹ 3 lakhs each. Both are residents of same place in Bhayander (E) and have advanced the loan out of bank account at Malad, Mumbai and had made payments to assessee at Kolhapur. Another confirmation which has been filed by Shree Sidhhivinayak Enterprises is loan advanced of ₹ 6,75,000/-. The date of receipt is 25.07.2009. The assessee resides in Mumbai, the bank account out of which loan was given is Syndicate Bank, Kandiwali, Mumbai. The repayment is out of bank account of ICICI at Kolhapur and it has been cleared on 29.07.2009. The assessee has not furnished bank statements of all the aforesaid persons. The learned Authorized Representative for the assessee states that the issue stands covered by the order of Tribunal, wherein in similar circumstances, the matter has been restored back to the file of CIT(A) and hence, the present case also similarly be decided. In para 8, the Tribunal observes that cash credits were not properly evidenced by the assessee before the Assessing Officer and CIT(A) and even the repayment of cash credits by the assessee to the creditors was not informed and in view of such facts, matter required thorough investigation. The Assessing Officer thus, was asked to verify the identity, creditworthiness and genuineness of transactions when repayments were duly made by assessee.
The aspect which has been noted by the Tribunal is the fact of repayment of loan to the creditors, was important evidence, which was required to be considered by the Assessing Officer when he decides to invoke the provisions of section 68 of the Act. The assessee before us has filed chart evidencing the amount received but has not clarified the date on which the said
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amount was received, though it is not disputed that it was received during financial year 2007-08. Again in the chart, date of cheque is not mentioned but the clearing date is mentioned. This chart is also enclosed in the Paper Book, which is placed at page 76 of Paper Book. The certificate on the said Paper Book mentioned that all the above documents were on record with the authorities below. In other words, the details of repayments were also before the Assessing Officer and CIT(A) also, though, they have not commented on the repayment aspect. In the case of Hem Kiran Diesels, the CIT(A) had allowed the assessee an opportunity to prove the creditworthiness of the depositors by way of producing the depositors and other relevant evidence before the Assessing Officer, but nothing was produced by assessee. In such circumstances, we do not find any merit in the plea of assessee that following the decision of Tribunal, matter may be set aside to Assessing Officer and CIT(A). Because of peculiar facts of present case, where the assessee has failed to establish creditworthiness of persons and merely because the said persons have PAN numbers does not establish second part that they are creditworthy to advance such huge loans. As pointed out earlier, Usha M. Shah and Mahesh B. Shah are related parties staying at same address have advanced ₹ 7 lakhs against meager source of advance. Similarly, Mohanlal M. Shah and Dinesh D. Mehata staying at the same residence have advanced ₹ 6 lakhs and Shree Sidhhivinayak Enterprises have advanced ₹ 6.75 lakhs. All these parties are in Mumbai having account at Kandivli and had made advances to the assessee at Kolhapur. One person Ajit C. Shah had advanced ₹ 4 lakhs, who is resident of Ahmedabad.
In the totality of the above said facts and circumstances, we find no merit in the claim of assessee and the assessee having not discharged onus of
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establishing creditworthiness of lenders and has also not established the genuineness of transactions especially where the Assessing Officer has commented that the amounts have been advanced out of bank account out of amounts deposited on the same date or immediately preceding date and where the assessee had not established creditworthiness of creditors, there is no merit in the plea of assessee. Thus, we uphold the addition of ₹ 80 lakhs in the hands of V.J & Sons and ₹ 67,50,000/- in the hands of Hem Kiran Diesels. The grounds of appeal raised in both the appeals are thus, dismissed.
In the result, both the appeals of assessee are dismissed.
Order pronounced on this 28th day of February, 2019.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 28th February, 2019. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : अऩीऱाथी / The Appellant; 1. प्रत्यथी / The Respondent; 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), Kolhapur; 3. 4. The CIT-I/II, Kolhapur / CIT (Central), Pune; ववबागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “फी” / DR 5. ‘B’, ITAT, Pune; 6. गार्ड पाईऱ / Guard file. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune