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Before: Shri A.D. Jain & Shri Dr. Mitha Lal Meena
In the Income-Tax Appellate Tribunal, Agra Bench, Agra Before: Shri A.D. Jain, Judicial Member And Shri Dr. Mitha Lal Meena, Accountant Member ITA No.308/Agr/2015 Assessment Year: 2010-11 vs. JCIT, Range – 2, Manish Maheshwari, Prop. Manish Sales, Inderganj Gwalior Square, Opp. Old High Court, Gwalior (M.P.) 474 009 PAN ABKPM 1254 D (Appellant) (Respondent)
Appellant by Shri Pankaj Gargh, Advocate Respondent by Shri Waseem Arshad, Sr. D.R.
Date of Hearing 29.08.2018 Date of Pronouncement 26/09/2018
ORDER Per Dr. Mitha Lal Meena, A.M.: This appeal has been filed by the assessee against the order of the ld. CIT(A) dated 20.05.2013, for A.Y. 2010-11,wherein the assessee has raised the following grounds of appeal:
“Ground No. 1 (i) Because the Ld. CIT(A) has erred both in law and on facts in confirming the addition of Rs. 2,00,000/- made by the Assessing Officer u/s 68 of the Income Tax Act treating the
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unsecured loan to be the undisclosed income of the assessee. (ii) Because the Ld. CIT(A) haslegally erredinnot accepting the acknowledgement of the income tax return and bank statement of the depositor - filed before him though specific request was made to admit the same. Ground No. 2 (i) Because the Ld. CIT(A) has wrongly, illegally and arbitrarily confirmed theaddition of Rs. 67,530/- made by the Assessing Officer u/s 40A(3) of the Income Tax Act. (ii) Because the Ld. CIT(A) has legally erred in rejecting the appellant'sspecificsubmissionand the unavoidable circumstances under which the payment wasmade. Ground No. 3 (i) Because the Ld. CIT(A) has wrongly, illegally and arbitrarily confirmed an addition of Rs. 1,11,038/- made by the Assessing Officer by disallowing the claim of interest paid holding the same to be not allowable u/s 57(iii) of the Income Tax Act.”
Apropos Ground No.1, the assessee has objected the addition
of Rs.2.00 lakhs made u/s 68 of the Act on account of unsecured
loan.
The Assessing Officer has observed in Para 3.5 of the
assessment orderas under:
“3.5 The submission of the assessee have been duly considered on. Perusal of the submission of the assessee, it was noticed that the assessee has furnished only the un-dated confirmation of Shri Kaushal Kishore Shrivastava alongwith copy
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computation of his income but did not file the copy of the return of income of the creditor as well as the bank statement of the creditor reflecting the said transaction of unsecured with it. Hence the assessee has not the established the geniuness of transaction and credit worthiness of the creditor Shri Kaushal ,Kishore Shrivastava as required under section 68 of the Act. Therefore, a letter under section 133 (6) of the Act was issued to Shri Kaushal Kishore Shrivastava vide this office letter F.No. JCIT/GWL/Range-2/2012-13/869 dated 15.02,2013 tor 22.02.2013, asking him to furnish the confirmed copy of account of the assessee in its books of account alongwith a copy of his return of income as well as the bank statement of his bank account through which the said transaction with the assessee during the F.Y. 2009- 10 had taken place, so as to verify his creditworthiness and genuineness of transaction. But in response to this letter also, no reply was received. 3.5.2Therefore genuineness of transaction and creditworthiness of the creditor Shri Kaushal Kishore Shrivastava is not proved, as required under section 68 of the Act.” 4. In appeal, the ld. CIT(A) has not admitted the additional
evidence furnished by the appellant under Rule 46A of the Act and
confirmed the addition as unexplained credit u/s 68 of the Act vide
Para 7.3 as follows:
“7.3 I have gone through the assessment order and written submission carefully. It is seen that during the course of assessment proceedings the assessee could not furnish the evidence to prove the capacity of the lender to lend the money to the appellant inspite of the fact that the assessee was granted sufficient opportunity to furnish evidence. The additional evidence furnished by the appellant during the course of appellate proceedings are not admitted as none of the conditions specified in rule 46A is satisfied by theappellant. Accordingly, it is held that the appellant has failed to prove the capacity of the lender to lend the money to the appellant. Hence the action of the A.O treating the amount of Rs.2 lacs as unexplained credit u/s 68 is held to be justified and the addition made by the A.O is hereby confirmed.”
The ld. counsel for the assessee has submitted that the AO
has made addition for want of copy of return of income and bank
statement of the creditors in order to establish the genuineness and
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creditworthiness of transaction. He contended that these details
required by AO i.e. the copy of income tax return and bank
statement of the depositor was filed before the Ld. CIT(A) with a
specific request to admit the same under Rule 46 of the Income Tax
Rules. The ld. CIT(A) did not admit the additional evidence and
confirmed the addition without appreciating the fact that the
assessee could not receive the bank account of the depositor till the
completion of the assessment and therefore could not filed the same
before the AO and hence he was prevented by sufficient cause from
not providing the evidence before the AO as one of the four additions
prescribed in Rules 46 of Income Tax Rules. In support he placed reliance on the judgment of ‘Naresh Chauhan vs. DCIT’, (2016) 48 ITR 1 (Trib.Chd.) (APB, 22 to 25). The written reply filed before the
CIT(A), which is reproduced in para 7.2 of the impugned order which
reproduced as under:
“7.2 On this issue, the appellant has filed written submission as under: - The Learned J.C.I.T, has added Rs. 2,00,000/- being the unsecured loan received from Kaushal Kishor Shrivastava. The credit confirmation and computation of total income was submitted during the course of Assessment proceedings. Copy of Income Tax return and copy of Bank statement were called from the depositor and due to non receipt in time
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could not submitted during the assessment proceedings for which no proper and reasonable opportunity was provided. "Therefore the copy of acknowledgment of return and bank statement are submitted before your honor." Therefore it is requested that the same may be kindly be admitted in view of rule 46 of the Income Tax Rules. Refer "Annexure - H". The loan was accepted by an account payee cheque no. 973928 dated 08.10.2009 and the said loan was repaid on 18.03.2010 by account payee cheque no. 410755. The interest of Rs. 12000/- also paid by account payee cheque no. 285471 dated 08.10.2009 after deducting TDS of Rs. 1236/-. The interest was allowed by the learned J.C.I.T. as allowable expenditure while passing the assessment order. The depositor is a salaried employee and amount advanced out of salary savings to earn interest for a period of six month. The amount has been received by the appellant through account payee cheque and refunded by account payee cheque. In order to establish the receipt of cash credit as required u/s 68 of the Income Tax Act, 1961 the assessee must satisfy three condition: i) Identity of the creditor. ii) Genuinessess of the transaction. Hi) credit worthiness of the creditor. For the verification of above copy of acknowledgment of return and copy of bank statement submitted. Amount has been advanced out of salary savings. The Identity of the Kaushal Kishore Shrivastava has been establish and the creditor has confirmed the loan, addition was not justify. Reliance is placed on following cases: DCIT V/s Rohini Builders 256 ITR 360 (Gujrat) CIT V/s HeeralalChaganlal 257 ITR 281 (Rajasthan) NemichandKothar V/s CIT 264 ITR 254 (Gawhati)"
The Ld. DR placed reliance on the impugned order.
Heard. It is undisputed fact that the assessee has filed the
income tax return and bank statement before the CIT(A) in the form
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of additional evidence which was not admitted, stating that none of
the conditions in Rule 46 was fulfilled by the appellant. Although the
ld. CIT(A) has not specified that which one of the conditions
specified in Rule 46 was not fulfilled for admission of the additional
evidence. The counsel for the assessee has submitted that since
bank statement was not received in time, so it could not be furnished
during the course of assessment proceeding and the assessee was
not granted sufficient opportunity to furnish the aforesaid evidence
before the AO. Hence, he was prevented by sufficient cause to
furnish the additional evidence. In the case of Naresh Chauhan
(Supra) held that "since additional evidences are relevant and goes
to the root of the matter, the Commissioner (Appeals) should have
admitted the same at the appellate stage. Further, the explanation of
the assessee is just and proper that despite making best efforts,
these evidences could not be filed at the assessment stage,
therefore, it would prove that the assessee was prevented by
sufficient cause from producing these relevant evidences before the
Assessing Officer at the assessment stage.Thus, the issue of
addition under section 68 was to be restored to the file of the
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Assessing Officer with direction to re-decide the issue of addition in the light of the additional evidences."
Considering the factual matrix of the case, we deem it fit and proper to restore the issue of assessee’s claim u/s 68 of the Act to the CIT(A) with the direction to consider the additional evidence which are relevant and goes to the root of the matter. Since the additional evidence are relevant and goes to the root of the matter, which the CIT(A) should have admitted at appellate stage itself as these evidences could not be filed at the assessment stage.We hold that the assessee was prevented by sufficient cause from producing these relevant evidences before the AO at the assessment stage, therefore, these evidences are admitted as on additional evidences under Rule 46 of I.T. Rules, 1962. The CIT(A) is directed to redecide the issue of addition u/s 68 of the Act after affording a reasonable opportunity of being heard to the assessee. No doubt, assessee shall cooperate in the fresh proceedings before the CIT(A). All the plea in law shall be available to the assessee.
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In the Ground No.2,the assessee’s grievance is that the CIT(A) 9.
has illegally and arbitrary confirmed the addition of Rs.67,530/- made
by the AO u/s40A(3) of the Act without appreciating the unavoidable
circumstances for payments of petty trade fare expenses.
The CIT(A) vide Para 4.2 confirmed the addition by observing
as under:
“4.2 I have gone through the assessment order and written submissions carefully. The contention of the appellant that its covered under the exemption granted u/s 6DD is not found to be correct. The decisions relied upon the appellant are on different set of facts and are not applicable to the case under consideration. Therefore, the disallowance made by the AO is hereby confirmed.” 11. The counsel for the assessee reiterated the submission made
before the ld. CIT(A) which find mentioned in Para 4.1 of the
impugned order as follows:
“4.1 On this issue the appellant has filed following written submission:- "The amount paid to Gwalior Trade Fair for Electricity charges. The amount has been paid due to not accepting the cheque payment by Gwalior Trade Fair authority. The amount has been debited to Trade Fair Expenses and the expenses are reimbursed by the Supplier of the Electronic products. The amount has been disallowed twice, first u/s 40 (a)(ia) and again u/s 40A(3) of the Income Tax Act, 1961. The amount has been paid due to commercial expediency. The Assessing officer can verify the identity of the person who has received the cash payment. Rule 6DD provides that
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an assessee can be exempted from the requirement of payment by a crossed cheque in the circumstances specified under the rule. It will be clear from the provisions of section 40 A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. As held by the Supreme Court in Attar Singh Gurmukh Singh Vs. J.T.O. (1991) 191 ITR 667 (SC) Sec. 40A(3) does not eliminate considerations of business expediencies. It was because of these considerations that in the case of Hynoup Foods Private Limited reported in (2007) 290 ITR 702 (Gujrat) observed that the genuineness of the payment and the identity of the payee are the first and foremost requirement to invoke the exceptions carved out in rue 6DD(j) of the Income tax rules, 1962. In the case of appellant assessee was compel to make cash payment due to following: - a) The Trade Fair Authority has not accepted the cheque payment. b) The amount has been paid due to business considerations as a Trade Fair is for 40 days only and the appellant is doing business on large scale. c) The Trade Fair Authority is also a legal entity having a Permanent Account Number.” 12. He furthersubmitted that the assessee is the retailer of
electronic items;that he has to display a stall of electronic items and
that he had displayed a stall of electronic items in Gwalior trade
fare.The petty cash expenses incurred in the trade fare were mainly
reimbursed by the distributor by way of credit note of manufacture
and sales target. In this regard, copy of ledger account APB, 30 to
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34 was filed,placed on record. In support, he relied various judgments of the Hon’ble Apex Court and High Courts, APB, Pgs. 30 to 46.
On perusal of the copy of ledger account of trade fare
expenses APB, 32 to 34, we find that cash expenses incurred in the
Gwalior trade fare by the assessee were legitimatepetty cash
expenses which are very well covered under the exception culled out
in I.T. Rule 6DD, therefore, we accept the grievance of the assessee
as justified, and as such the addition of Rs.67,530/- is deleted and
this ground of appeal is allowed.
The last issue pertains todisallowance of the claim of interest
paid by the assessee of Rs.1,11,038/-.
The Assessing Officerhas observed as under:
“5.3 In the present case, the assessee has submitted that it had borrowed the capital in earlier years and interest was being paid on every year and was being allowed every year. Further the assessee has submitted that the money which was borrowed was used for the purpose of business. Therefore, it is clear that the loan was not taken by the assessee from M/s Manish Agency and Shri Arvind Kumar Chowdhury for the purpose of earning the interest income under the head 'income from other sources' and therefore, the interest paid on these loans is not allowable as deduction u/s 57(iii) of the Act. In other words, the assessee has not incurred an expenditure of ? 1,11,0387-wholly and exclusively for the purpose of earning of interest income from M/s Manish Agency and Shri
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Arvind Kumar Chowdhury or other interest income under the head 'income from other sources'.” 16. The Ld. CIT(A) has observed as under:
“10.2 I have gone through the assessment order and written submission carefully. The findings of the AO that the amount borrowed from M/s Manish & Arvind was not utilized for earning the income chargeable under the head ‘income from other sources’, therefore, no deduction u/s 57(iii) is admissible to the appellant in respect of interest paid on these loans, is found to be correct. Accordingly, the disallowance made by the AO is hereby confirmed.” 17. While reiterating the submission made before the Ld. CIT(A), the counsel for the assessee contended that the loans in question were received in earlier years which were outstandingin the subsequent years and the interest so paid on these outstanding loans have been allowed in the assessment framed u/s 143(3) in the earlier assessment year. The assessee’s reply filed before the Ld. CIT(A) is mentioned in para 10.1 of the impugned orderwhich is reproduced hereunder:
“On this issue, the appellant has filed following written submission:- "The amount was borrowed in earlier years for the purpose of business and interest paid regularly year to year and the same is accepted and allowed by the Assessing Officers while completing the Assessment. During the year neither the amount borrowed nor repaid and interest paid as per practice followed in earlier years.
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Manish Agency is the Proprietorship firm of Shri Praveen Maheshwari and who has paid the Income tax at the rate of 30% on such income. Copy of Computation and copy of Acknowledgement return is enclosed Shri Arvind Kumar Chaudhary has also paid tax on interest income. Copy of Acknowledgement of return and copy of Computation is enclosed. The amount borrowed is used for the purpose of business and accounted for as per practice followed. The amount of interest has been allowed as expenditure while passing the Assessment order for A.Y. 2012-13 and earlier years u/s 143(3) of the Income Tax Act, 1961. Refer "Annexure - K".” The assessee’s submission vide para 3 of synopsis is 18.
reproduced for ready reference as under:
“The interest paid has been claimed under the head profit and gains of business. The loans were received in earlier years and in the subsequent years also the loan was outstanding and interest has been paid which has been allowed in assessment framed u/s 143(3). Copy of computation of income of preceding and subsequent year alongwith copy of assessment orders u/s 143(3) of the Act enclosed:- A.Y. 2008-09 Page No. 51 to 53 of Paper Book. A.Y. 2009-10 Page No. 56 to 58 of Paper Book. A.Y. 2012-13 Page No. 62 to 64 of Paper Book. Rule of consistency to be followed. Reliance on the judgment, copy of which are enclosed in the paper book.” 19. It is undisputed fact that the assessee has paid interest on the
borrowed fundduring the earlier years and then it was being paid
thereafter in the subsequent years. However, during the year under
appeal the assessee has claimed the interest expenses under the head ‘income from other sources’ instead of claiming the same
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under the head ‘business income’. The assessee has claimed that the loan was received in the preceding year and were being used for business purpose; that by default the interest expenses were claimed under the head income from other sources instead of claiming under the head business income, although the loans were received and were being used for business purpose. In support, the assessee has enclosed a copy of computation of income (APB, 47) for preceding and subsequent years along with copy of assessment order u/s 143(3) of the Act as above. As such there is no change on any other facts of the case.
The contention of the counsel that if the interest paid on the aforesaid old borrowings is not allowable u/s 57(3), the same should be allowable under the head business income as it has been allowed in the preceding and subsequent years as per the provisions of law is found correct.
In view of above, this issue is restored to the AO to decide afresh after examining and verifying the veracity of the documents as per synopsis filed by the assessee viz-a-viz assessment records
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and affording due opportunity of being heard to the assessee. No
doubt, assessee shall cooperate in the fresh proceedings before the
AO.
In the result, appeal of the assessee is partly allowed.
(Order pronounced in the open Court as on 26/09/2018)
Sd/- Sd/- (A.D. Jain) (Dr. Mitha Lal Meena) Judicial member Accountant Member
Dated: 26/ 09/2018 Aks - Doc
Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Agra Bench, Agra
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Date 1. Draft dictated / (DNS) 10.09.2018 PS 2. Draft placed before author 13.09.2018 PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.