THE ITO, WARD - 3(2)(2), SURAT vs. SHRI POPATBHAI RANCHHODBHAI BHADANI, SURAT

आदेश /O R D E R

PER O. P. MEENA, ACCOUTANT MEMBER:

ITO 3(2)(2) Surat v. Popatbhai Ranchhodbhai Bhadani /I.T.A. No.585 & CO-63/Ahd/2016/A.Y.:11-12 Page 2 of 19

of Income tax (Appeals)-3, Surat (in short “the CIT (A)”) dated 13.12.2105 pertaining to Assessment Year 2011-12, which in turn has arisen from the assessment order passed under section 143 (3) dtd. 26.03.2014 of Income Tax Act,1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 8(3) Surat (in short “the AO”). I.T.A. No. 585/Ahd/2016/A.Y. 2011-12, By REVENUE:

restricting to Rs. 12,00,350/- from Rs. 47,98,550/- made on

account of unsecured loan, without appreciating the facts the

assessee could not prove genuineness and creditworthiness of

transaction and holding that the assessee has discharged onus

by simply filing confirmation and copy of ITR`s. Ld. CIT (A)

further erred in telescoping for estimated addition of net profit

against the addition made under section 68 of the Act.

loan from various parties as detailed below:

S.No Name PAN Amount Mode 1 Rambhaben P. Bhadani ADUPB6997L 3,00,000 Chq 2 Varshaben V. Bhadani AJOPB5252C 5,00,000 Chq 3 Ranjanaben B. Kalathia AJSPK9080D 3,00,000 Chq 4 Jignesh R. Bhadani APFPB9995R 3,00,000 Chq

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5 Manishbhai R. Bhadani AOJPD7804A 3,00,000 Chq 6 Lakhdhir B Hun ABSPH7446N 5,00,000 Chq 7 Madhavji R. Bhadani AJOPB4843R 5,00,000 Chq 8 Rekhaben B. Setha 2,00,000 RTGS 9 Aketa Gram Vikas Trust 6,00,000 Chq 10 Bharatbhai R Setha 10,00,350 RTGS 11 Dhiru Ramji Lathiya 2,98,200 Total 47,98,550 4. The AO has issued notice under section 133(6) to above parties asking evidence like acknowledgement of return of income, PAN, copy of balance sheet, capital account, copy of bank account. In reply the assessee furnished affidavit from five persons and copy of acknowledgement of return of income, balance sheet, Bank statement, computation of income, capital account, Confirmation of account, ledger account and PAN and affidavit as ID Proof. However, the AO has made addition, as the AO found that in the case of three persons namely Rambhaben and Varshaben and Madhavji, there was cash deposits in their bank accounts before issue of cheque to the assessee. In the case three persons, namely -Ranjanben Rekhaben B Setha, Bharatbhai Setha, confirmation was not filed. In the case of three persons namely Jignesh, Manishbhai, Lakhdhir, these depositors have made deposit in their bank account before issue of cheques and in the case of Aketa Gram Vikas Trust, deposit is doubtful as the assessee himself functioning of Trust.

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ld.CIT(A). Wherein it was claimed that the assessee has filed

copies of acknowledgement of return of income, balance sheet,

Bank statement, computation of income, capital account,

confirmation of account, ledger account and PAN and affidavit as

ID Proof. Therefore, the assessee has discharged onus cast u/s.68

of the Act by filing of acknowledgement of return of income, PAN,

copy of balance sheet, capital account, copy of bank accounts.

The assessee has also placed reliance in the case of CIT v. Orissa

Corporation (P) Ltd. [1986] 159 ITR 78 (SC)/ 25 Taxman 80(SC) DCIT

v. Rohini Builders [2002] 256 ITR 360 (Guj.)/ [2003] 127 Taxman

523 (Guj), CIT v. Metachem Industries [2000] 245 ITR 160 (MP):161

CTR 444 (MP): [2001] 116 Taxman 572 (MP), Nemichand Kothari v.

CIT [2004] 264 ITR 254/ 136 Taxman 213 (Gauhati), CIT v.

Ranchhod Jivabhai Nakhava [2012] 81 CCH 193 Guj-HC Diamond

Products 177 Taxman 331(Raj.) in support of his contentions. In

view of these facts and circumstances, the CIT (A) held that as per

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ratio laid down in above decisions, when the confirmation of

lender is filed along with bank accounts and income-tax details

provided the onus of the assessee to prove all the three elements

are discharged. If there are cash deposits in lenders account, then

the same may be examined in the hands of said lenders and it

cannot be automatically presumed to be undisclosed income of the

assessee. The CIT (A) observed that as stated in assessment order

except two cases of Shri Bharatbhai Setha and Smt. Rekhaben

Setha, all details of lenders were produced before the AO. In the

case of two lenders details such as confirmation, bank account

copy have been received except PAN and income tax returns and

they were not assessed to tax. Hence, in their cases, source of

deposits / credits in bank account cannot be examined in

assessment proceedings, whereas in respect of rest of the cases,

the deposits can be examined in assessment of the lenders.

Therefore, respectfully following the ratio of above, decision the

CIT (A) has confirmed the addition of Rs. 2 Lakh in the case of Smt.

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Rekhaben Setha and Rs.10,00,350/- in the case of Shri Bharatbhai

Setha and addition in respect of 9 person was deleted. Ld.CIT (A)

further observed that the addition already made by way of

estimation of income in this case. Whereas the addition under

section 68 is the application of such unaccounted income. So

telescoping of for the estimated addition of net profit needs to be

given against the addition made under section 68 of the Act.

Accordingly, Ld. CIT (A) confirmed the addition of Rs.12,00,350/-

out of total addition of Rs.47,98,550/-. Ld. CIT (A) further allowed

telescoping of said addition against other estimated net profit

addition of Rs.93,73,230/- and rest being Rs.81,72,880/- was

deleted.

the Tribunal against the deletion of addition of Rs.81,72,880/-.

Whereas the assessee has filed Cross Objection against the

sustenance of addition of Rs.12,00,350/-.

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respect of three person before issue of cheques to the assessee.

Hence, genuineness of transaction and creditworthiness of these

persons not satisfied. Further, there is cash deposits in respect of

three person’s bank account before issue of cheques to the

assessee. Therefore, identity, credit-worthiness and genuineness

of transaction in respect of lenders is not established. Further, the

assessee himself is running the Aketa Gram Vikas Trust and hence,

loan taken from said Trust is doubtful. Therefore, CIT (A) was not

justified in restricting the addition to Rs. 12,00,350 only. Further,

the CIT (A) has wrongly allowed telescoping of addition under

section 68 against net profit and unaccounted income estimated

by the AO. Therefore, it was vehemently argued that the AO was

right in making the addition under disputes.

that the CIT (A) was not justified in retaining addition of Rs.

12,00,350 as Smt. Rekhaben and Shri Bharatbhai have paid the

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unsecured loan by RTGS through banking channel and their identity

was proved. Therefore, if the AO was not satisfied in their cases

then necessary action should have been taken in the hands of

respective persons and not in the case of the assessee. With regard

to deletion of addition, the learned Counsel, supported the order

of Ld. CIT (A). Learned Counsel contended that the Ld. CIT (A) has

rightly allowed telescoping against the addition sustained under

section 68 as the said addition is application of income against the

net profit and unaccounted income. The learned counsel for the

assessee also placed reliance on various case laws as relied during

the appellate proceedings and also relied in the case of DCIT v.

Rohini Builders [2002] 256 ITR 360 (Guj.)/ [2003] 127 Taxman 523

(Guj) and CIT v. Metachem Industries [2000] 245 ITR 160 (MP):161

CTR 444 (MP): [2001] 116 Taxman 572 (MP) in support of his

arguments.

relevant material on record. We find that in respect of all nine

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creditors the assessee had furnished their complete addresses

along with Permanent Account Numbers as well as confirmation

along with copies of acknowledgements of income-tax returns,

balance sheet, Bank statement, and computation of income,

capital account, Confirmation of account, ledger account and

affidavit as ID Proof. The assessee received all the loans by

account payee cheques and account payee cheques along with the

interest in relation to those loans and had made the repayments

of loans. Thus, the assessee had discharged the initial onus, which

lay on it in terms of section 68 by proving the identity of the

creditors by giving their complete addresses, Permanent Account

Numbers and the copies of income-tax returns wherever readily

available. It had 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 was not expected to prove the genuineness of the

cash deposited in the bank accounts of those creditors because

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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 (Bom). The genuineness of the

transaction was proved by the fact that payment was made by

account payee cheques to the assessee as well as repayment of

the loan by the assessee to the depositors and the interest was

paid by the assessee to the creditors by account payee cheques.

In the case of CIT v. Orissa Corporation (P) Ltd. [1986] 159 ITR 78

(SC)/ 25 Taxman 80 (SC), the Hon`ble Supreme Court has observed

that when the assessee furnishes names and addresses of the

alleged creditors and the GIR Numbers, the burden shifts to the

Department to establish the revenue’s case and in order to sustain

the addition the revenue has to pursue the enquiry and to

establish the lack of creditworthiness and mere non-compliance

of summons issued by the Assessing Officer under section 131 by

the alleged creditors will not be sufficient to draw an adverse

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inference against the assessee. In case of six creditors who

appeared before the Assessing Officer and whose statements were

recorded by the Assessing Officer, they had admitted having

advanced loans to the assessee by account payee cheques and in

case the Assessing Officer was not satisfied with the cash amount

deposited by those creditors in their bank accounts, the proper

course would have been to make assessments in the cases of those

creditors by treating cash deposits in their bank accounts as

unexplained investments of those creditors under section 69. The

Hon`ble Madhya Pradesh High Court in the case of CIT v. Metachem

Industries [2000] 245 ITR 160 (MP):161 CTR 444 (MP) : [2001] 116

Taxman 572 (MP) CIT v. held: Once it is established that the

amount has been invested by a particular person, be he a

partner or an individual, then the responsibility of the

assessee-firm is over. The assessee-firm cannot ask that

person who makes investment, whether the money invested is

properly taxed or not. The assessee is only to explain that the

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investment has been made by the particular individual and it

is the responsibility of that individual to account for the

investment made by him. If that person owns that entry, then

the burden of the assessee-firm is discharged. It is open for the

Assessing Officer to undertake further investigation with

regard to that individual who has deposited this amount. So

far as the responsibility of the assessee is concerned, it is

satisfactorily discharged. Whether that person is an income-

tax payer or not or from where he had brought this money, is

not the responsibility of the firm. The moment the firm has

given a satisfactory explanation and produced the person who

has deposited the amount, then the burden of the firm is

discharged and in that case, that credit entry cannot be treated

to be the income of the firm for the purposes of income tax. It is

open for the Assessing Officer to take appropriate action under

section 69 against the person who has not been able to explain

the investment. The above decision clearly supports our view.

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Legislature has laid down that in the absence of a satisfactory

explanation, the unexplained cash credit "may be charged to

income-tax as the income of the assessee of that previous year".

The legislative mandate is not in terms of the words "shall be

charged to income-tax as the income of the assessee of that

previous year". The Supreme Court while interpreting similar

phraseology used in section 69 has held that in creating legal

fiction the phraseology employs the word ‘may’ and not ‘shall’.

Thus, unsatisfactoriness of the explanation does not and need not

automatically result in deeming the amount credited in the books

as the income of the assessee as held by the Hon`ble Supreme

Court in the case of CIT v. Smt. P.K. Noorjehan [1997] 11 SCC 198.

The Hon`ble Jurisdictional High Court of Gujarat in the case of CIT

v. Ranchhod Jivabhai Nakhava [2012] 81 CCH 193 Guj-HC held that

Where lenders of assessee are income-tax assessees whose PAN

have been disclosed, Assessing Officer cannot ask assessee to

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further prove genuineness of transactions without first verifying

such fact from income-tax returns of lenders.

case of Nemichand Kothari v. CIT [2003] 264 ITR 254 (Gauhati)

which laid down that where initial onus placed on the assessee is

discharged by the assessee, then onus to prove the amount

credited in books of accounts is undisclosed income of the assessee

is on revenue. Since in this case the assessee has discharged its

initial, hence, no addition under section 68 could be made in the

case of the assessee.

circumstances of the case, the Ld. CIT (A) was justified in deleting

the addition made on account of unsecured loan in respect of Nine

person amounting Rs. 35,98,200 and confirming addition of Rs.

12,00,350. In view of above discussion, facts and case laws of

various High Courts and Hon`ble Supreme Court discussed above

and relied by the assessee, the Ld. CIT (A) was justified in deletion

ITO 3(2)(2) Surat v. Popatbhai Ranchhodbhai Bhadani /I.T.A. No.585 & CO-63/Ahd/2016/A.Y.:11-12 Page 15 of 19 of addition of Rs. 35,98,200 and restricted the addition to Rs.

12,00,350. We further hold that the CIT (A) was also right in

allowing telescoping of the addition made under section 68 as

against unaccounted income as unaccounted income has been

generated by rotating the unaccounted loan taken at

Rs.12,00,000/-. Therefore, Ground No. 1 to 4 of Revenue are

dismissed. Since we have upheld the addition sustained by the

Ld. CIT (A). Therefore, the Cross Objection challenging the

sustenance of addition of Rs. 12,00,350 by the Ld. CIT (A) is also

dismissed.

Cross Objection No. 63/Ahd/2016/A.Y.11-12: By Assessee:

Rs.12,00,350/-. In view of above facts as discussed in grounds no.

1 to 4 of appeal of Revenue, this ground is dismissed is covered by

finding and reasons recorded therein. In view of this matter, this

ground is accordingly, dismissed.

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section 145(3) of the Act.

as discussed by the AO in impugned assessment order and same

were upheld by Ld. CIT (A). We also concur, the view taken by

lower authorities. Nevertheless be, this grounds of appeal is

therefore, dismissed.

on account of net profit addition with a view to bring NP at 3.39%

which is according to him comparable with earlier years NP.

labour payments made in cash without preparing vouchers hence,

the AO proposed to disallow 20% of such expenses. It was explained

that the assessee has incurred such expenditure in connection with

check Dam and construction activity from which the assessee has

earned gross income at Rs. 3,86,97,407 on which net profit

declared is at Rs. 8,42,902 which comes to 2.16%. However, the

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AO noticed that net profit in preceding year was at 3.21% and

verification of books of accounts showed that most of expenses are

in cash and debited either at fag end of the year without obtaining

any bills and preparing vouchers. In view of this matter, the AO

disallowed 3% of Rs. 1,60,07,220, which worked out to Rs.

4,80,217.

CIT (A). Ld. CIT (A) observed that by disallowance of expenses of

Rs. 4,80,217 the net profit arrived at 3.39% which is at comparable

with preceding year at 3.21% and disallowance were made after

rejection of books of accounts. Hence, this addition was found

reasonable.

Tribunal. The learned counsel for the assessee argued that Ld. CIT

(A) has considered that the fall in net profit rate of preceding year.

However, the expenses were incurred in connection with check

Dam activity in remote area. Hence, expenses have to be incurred

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in cash but these are debited on day-to-day basis in cashbook.

Hence, Ld. CIT (A) was not justified in confirming the same on the

ground that it makes net profit rate to appear with last year.

the orders of AO/CIT-A.

relevant material on record. We find that the books of accounts

were not found reliable by the AO, hence; same were rejected by

the AO by invoking provisions of section 145(3) of the Act. Ld. CIT

(A) also upheld the rejection of books of accounts. We further find

that the expenses were incurred in cash and debited in books of

accounts at the fag end of the accounting year without making

proper bills and vouchers and there is fall in net profit rate, which

is at 2.16% as compare to preceding year of 3.21%. Therefore, the

CIT (A) has rightly confirmed the same so that it could give net

profit rate 3.39%, which is comparable to preceding year.

ITO 3(2)(2) Surat v. Popatbhai Ranchhodbhai Bhadani /I.T.A. No.585 & CO-63/Ahd/2016/A.Y.:11-12 Page 19 of 19 Therefore, we do not find any fault in the order of Ld. CIT (A). In

view of this matter, this ground of appeal is dismissed.

Objection of the assessee are dismissed.

Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत Dated: 22nd June, 2018 आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : 1. अपीलाथ�/ The Appellant; 2. ��थ�/ The Respondent; 3. आयकरआयु� (अपील) The CIT(A), 4. �.आयकरआयु� /Pr. CIT 5.िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण/ D.R.-ITAT; 6. गाड�फाईल / Guard file ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat