M/S KUMAR BROTHERS (CHEMISTS) PVT. LTD.,CHANDIGARH vs. DCIT, C-1(1), CHANDIGARH

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ITA 1076/CHANDI/2017Status: DisposedITAT Chandigarh06 August 2019AY 2013-145 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Revenue had not brought forth evidence to prove the transaction was not genuine. It further stated that if the cash deposits in the loan party's account are unexplained, the addition should be made in the hands of the loan party, not the loan recipient, especially when the loan party is an income tax assessee.

What were the facts?

The assessee received an unsecured loan of Rs. 6,00,000/- from Sh. Sonu Garg. The Assessing Officer added Rs. 3,35,000/- to the assessee's income, alleging that the genuineness of the transaction and the source of the creditor were not proved due to cash deposits in the creditor's bank account.

What were the issues?

Whether the addition of Rs. 3,35,000/- as unexplained income under Section 68 was justified when the assessee provided evidence of the loan and the creditor was an income tax assessee.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH

For Appellant: CA राजव क ओर से/
For Respondent: Smt. Poonam Sharma, Sr. DR
Hearing: 09/05/2019Pronounced: 06/08/2019

PER DR. B.R.R. KUMAR, A.M The present appeal has been filed by the Assessee against the order of the Ld. CIT(A)-1, Chandigarh dt. 07/03/2017. 2. In the present appeal Assessee has raised the following grounds:

1.

That on the facts and in the circumstances of the case and in law, the Worthy CIT(A) in Appeal No. 307/15-16 dated 15.02.2016 has erred in passing that order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961. 2. That on facts, circumstances and legal position of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he made addition of Rs. 3,35,000/-u/s 68 by erroneously holding that the assesse company has not proved the genuineness of the transaction and source of creditor is also not proved. However, the assessee company has received unsecured loan from Sh. Sonu Garg of Rs.6.00 lacs through proper banking channel. The said creditor Sh. Sonu Garg had withdrawn income by way of salary. During the assessment proceedings and appellate proceedings also, copy of ITR along with bank

account, salary account and confirmation in the form of affidavit of the said creditor was filed. The resp/ective sources of the sources of the credit of Rs. 6.00 lacs were duly furnished/explained. Moreover the assesse company has refunded the loan received to the creditor in the immediate succeeding year through proper banking channel.

3.

That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.

3.

The facts as taken from the records of the CIT(A) are as under:

4.

During the year the assessee has received unsecured loans of Rs. 6,00,000/- from one Sh Sonu Garg. The Assessing Officer observed that Shri. Sonu Garg had cash deposits before issue of loan in Cheque and that Sh. Sonu Garg did not have the capacity to extend then loan. The observation of the Assessing Officer is as under:-

"4.1 On perusal of the balance sheet it was found that the assessee has received unsecured loans from various persons. The assessee was asked to produce the details of unsecured loans received alongwith confirmation from the parties and the source of unsecured loan given to the assessee given.

4.

2 On verification it was found that the loan taken from one Sh. Sonu Garg amounting to Rs. 6,00,000/- includes cash receipts. The assessee vide order sheet entry dated 25. 01.2016 was therefore asked to produce the copy of ITR alongwith. the source of cash to prove the genuineness of the transaction. On perusal of the !TR of Sh. Sonu Garg for A. Y. 2012-13 it was found that Sh. Sonu Garg has declared total income of Rs. 2,41,150/- only. On perusal of the bank account statement of Sh. Sonu Garg it was found that before giving unsecured loans to assessee company, there were cash deposit of Rs. 2,15,000/-. Apart from this the ledger of loan account of Sh. Sonu Garg revealed that there is another cash deposit of Rs. 1.20,000/ during the year. The assessee was therefore asked to explain the source of this cash of Rs. 3,35,000/ - (2,15,000 + 1,20,000} received as unsecured loan during the year. However the assessee failed to explain anything in this regard.

4.

3 Since the assessee could, not prove the genuineness of the transaction and credit worthiness of Sh. Sonu Garg, the assessee was show caused vide order sheet entry dated 28.01.2016 to explain as to why not the amount of Rs. 3,35,000/ he treated as income u/s 68. The assessee however once again expressed his inability to explain the source of cash received amounting to Rs. 3,35,000/ as unsecured loan. Thus the assessee has failed to discharge his onus to explain the source of cash deposited despite of repeated opportunities given. Accordingly the amount of Rs. 3,35.000/- is treated, as income as per provision of section 68 and the amount is added to the income of the assessee."

5.

Before the Ld. CIT(A) the assessee has given following submission:-

"According to section 68 of the Income Tax Act, 1961, where any sum is found credited in the hooks of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of A.O., the sum so credited may be charged to income tax as the income of the assessee of that previous year. The basic precondition for the section 68 is that the assessee should file a valid confirmation. Valid confirmation has no specific format but. it must contain name, complete address of the lender. It is better if PAN of the tender is also obtained as, if no PAN given then ambit of doubt is far more for the AO With the confirmation, the AO must insist on some identity proof like copy of driving license, copy of passport, copy of radon card or election ID curd etc. The confirmation so filed must indicate complete details of transactions (like mode-cash or cheque, with number date of cheque with bank details}. The AO have right to demand the copy of bank account of the lender evidencing such transactions and the same needs to be filed, in case transaction is in cash then AO must demand cash flow statement of the lender, preferably containing details of opening balance, and its source thereof. As far as the creditworthiness or financial strength of the creditors/ subscriber is concerned, that can be prove by producing the bank statement of the creditors/ subscribers is concerned, that can be proved by producing the bank statement of the creditors/ subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the short- <.-upitul Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the mailer further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to he some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. Thus element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/ inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. If the Assessing Officer observe some cash deposit before issue of cheque then some 'nexus' must be established between the cash deposit and the lendee. A mere observation that cheque is issued after few days of cash deposit and additions made on this count will not sustain in the appellate stage. Hon'ble Gujarat HC has even held in 208 Taxman 35 that even if there is cash deposit before the cheque is issued same cannot be held has income of lendee if lender is income tax assessee. In the light of the above submission and also the documents submitted during the assessment proceedings i.e. bank statement, ITR, PAN card & aadhar card along with confirmation in the form of affidavit and source of income of creditor, no room is left for making addition u/s 68 of the IT Act and same is liable to be deleted."

6.

The Ld. CIT(A) supported the observations of the Assessing Officer while confirming the addition the Ld. CIT(A) has observed as under:

I have examined the issue in detail. In order to make addition u/s 68, the following three things have to be proved. Even one of these conditions is not proved then the amount can be added u/s 68 viz. Identity of creditor, Source of funds, Genuineness of transaction

In this case the identity of the creditor is proved as the creditor is an income tax assessee. However, genuineness of transaction could not be proved during assessment or in appeal. The payment was made in cash and there is no document produced by the appellant to show the happening of this transaction. The source of creditor is also not proved. Sh. Sonu Garg did not have adequate sources to justify the payment. Hence, the addition of 3,35,000/- is confirmed.

7.

During the arguments before us, the Ld. AR relied on the arguments taken before the Revenue Authorities while Ld. DR supported the order of the Ld. CIT(A).

8.

We have gone through the arguments and record before us, we find that the total loan given by Shri Sonu Garg is of Rs. 6,00,000/-. The Revenue Authorities have made addition of Rs. 3,35,000/- out of the Loan of Rs. 6,00,000/- extended on the grounds that there were cash deposits to the tune of Rs. 3,35,000/-. The Ld. CIT(A) also held that though the identity and source of funds has been proved the genuineness of the transaction could not be proved. The Revenue has not brought anything on record to prove or to lead how this transaction is not genuine even in the normal parlance. Revenue has not disputed the evidences filed by the assessee to prove that the loan is not genuine. In the case, where the nexus of the assessee and the loan party cannot be proved regarding the introduction of the assessee’s unaccounted income being brought into the books of account in the form of loan, the Revenue cannot make addition in the hands of the assessee. In the case the Cash Deposits in the Bank Account of the Loan Party have not been duly explained to the satisfaction, then the addition is to be made in the hands of the loan party for having unexplained cash deposits in his account but not in the hands of the loan receiving party specially when the loan party is an income tax

assessee and all the details about that party are available with the Revenue. Hence, keeping in view the entirety of the facts specific to this case, we hereby hold that the action of the Ld. CIT(A) in confirming the part loan cannot be upheld.

9.

In the result, appeal of the Assessee is allowed.

Order pronounced in the open court. "दवा "संह डा. बी.आर.आर, कुमार, (DIVA SINGH ) ( DR. B.R.R. KUMAR, AM) "या"यक सद"य/ Judicial Member लेखा सद"य/ Accountant Member AG Date: 06/08/2019

आदेश क" ""त"ल"प अ"े"षत/ Copy of the order forwarded to :

1.

अपीलाथ"/ The Appellant

2.

""यथ"/ The Respondent 3. आयकर आयु"त/ CIT 4. आयकर आयु"त (अपील)/ The CIT(A)

5.

"वभागीय ""त"न"ध, आयकर अपील"य आ"धकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/

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