V.M. PRECISION PUNCH PVT.LTD., HYD,HYDERABAD vs. DCIT, CIRCLE-3(3), HYD, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” SMC BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA. No.998/Hyd/2016 Assessment Year: 2006-2007 V.M. Precision Punch Private vs. DCIT, Limited, Circle-3(3), Plot No.39 & 40, SV CIE, Hyderabad. Balanagar, Hyderabad – 500 037. PAN:AABCV 9690 H (Appellant) (Respondent) For Assessee: Shri V. Siva Kumar For Revenue : Smt. Suman Malik, DR Date of Hearing : 19.02.2018 Date of Pronouncement : 27.04.2018 ORDER PER D. MANMOHAN, VP. This appeal is filed at the instance of the assessee-company and it pertains to Assessment Year 2006-07. 2. Addition of Rs. 10,48,000/- made by the A.O. towards unexplained cash credit and confirmed by the Ld. CIT(A), is the subject matter of dispute before the Tribunal. 3. Facts necessary for the disposal of the appeal are stated in brief. Assessee is engaged in the business of manufacture of engineering goods which are used in electric and electronic industries. For the year under consideration it declared a loss of Rs. 13,87,476/-; The same was processed u/s 143(1) of the Act on 13.07.2007 but later on selected for scrutiny and a notice u/s 143(2) was issued on 05.10.2007. In

response to the notice, assessee’s Authorised Representative appeared and filed the information called for. 4. During the course of examination of books, A.O. noticed that the assessee introduced a sum of Rs. 50,44,000/- as unsecured loans. Assessee was asked to file confirmation letters in support of its claim. In response thereto, the assessee submitted that four Directors of the company and five share holders of the company have contributed the aforementioned amount. Confirmation letters were also filed before the A.O. 5. On verification of the confirmation letters filed by Smt. S.B.L.N. Jyothi, A.O. noticed that she does not have proper source to deposit a sum of Rs. 5 lakhs since she had taken Rs. 3 lakhs in the form of gifts from parents and relatives and Rs.s 2 lakhs was the loan received from her husband. Smt. Jyothi stated that her sources were gift from her parents and relatives on the occasion of her marriage in the year 2001, but she has not furnished any proof i.e., copy of the bank account indicating the deposits made by her as and when she received gift and the mode of gift etc. Further, she had stated that she was having income from her profession of fashion designing work. For this also she did not furnish any proof such as copy of the return of income, bank account statement through which the loan was taken etc. In the absence of such details, the A.O. concluded that the assessee failed to prove the genuineness of the above transaction since creditworthiness of Smt. Jyothi is in dispute. Accordingly, he treated the same as ‘unexplained income’ of the assessee and added to the total income of the assessee. 6. Shri V. Nagi Reddy stated to have given a sum of Rs. 5,48,000/- and the source for the above amount was stated to be sale proceeds of 4.0 acres of agricultural land, which was sold during the years 1991 to 1993. A.O. observed that the assessee has not produced any

agricultural pass book for holding of agricultural land and copy of the bank pass book indicating the sale proceeds and also copy of bank account from which the loan was given. In the absence of the above details, the loan taken from Shri V. Nagi Reddy was held to be bogus and accordingly A.O. added the same by treating it as assessee’s unexplained income. 7. On account of the addition relatable to the unexplained cash credits to the tune of Rs. 10,48,00/-, the net loss was determined at Rs. 3,39,476/- as against Rs. 13,87,476/-. 8. Aggrieved, assessee contended before the Ld. CIT(A) that the assessee received a loan of Rs. 5 lakhs from Smt. Jyothi through cheques on various dates. She is also a share holder of the assessee- company and assessed to income tax under PAN: AJJPM2108B. She also filed confirmation letters stating that the sum of Rs. 5 lakhs was deposited in the company’s account and the source of the same was gifts received at the time of her marriage and hand loan taken from her husband. She also stated that she had received gift of Rs. 1.50 lakhs from her parents and relatives on 06.05.2001 and the said amount was lent to friends and relatives for interest. 9. Similarly, with regard to loan in the name of Shri V. Nagi Reddy it was stated that he is also a share holder of the assessee-company and he filed the confirmation letters to the effect that the source of funds was the sale proceeds from sale of 4 acres of agricultural land during the years 1991 to 1993 which in turn was given to friends and relatives and upon receipt of the same, the amount was deposited in the company’s account. 10. Since assessee furnished additional material in proof of source of funds in the hands of cash creditors it was sent for verification of the Assessing Officer for his comments. The Assessing Officer in turn

observed that the additional evidence should not be considered since sufficient opportunity was given to the assessee to produce the evidence before the A.O. 11. Ld. CIT(A) observed that the additional evidence is governed by Rule 46A of the Income Tax Rules, 1962. Though confirmation letters were not furnished before the Assessing Officer at the assessment stage, the first appellate authority is entitled to make further enquiry before admitting the additional evidence, to enable him to dispose of the appeal in accordance with law. In fact even if the appellant does not suo moto produce any evidence, in the spirit of justice and fair play, it is incumbent on the first appellate authority, being a quasi-judicial authority, to require the appellant to produce requisite evidence or to make necessary enquiry. From that perspective, the Ld. CIT(A) was of the opinion that the additional evidence deserves to be admitted and accordingly called for the remand report of the A.O. Though the Assessing Officer objected to admission of the evidence, Ld. CIT(A) counters the argument of the Department by observing that the details submitted are crucial to the ground raised in the appeal and therefore, considering the principles laid down by the Hon’ble Bombay High Court in the case of Smt. Prabhavati S. Shah vs. CIT (231 ITR 1), additional evidence was admitted. 12. However, while considering the additional evidence Ld. CIT(A) observed that even though the identity of the creditor was proved, the creditworthiness of the creditor and genuineness of the transactions are not established and accordingly the additions made by the Assessing Officer were confirmed. Further aggrieved, assessee is in appeal before the Tribunal. 14. Learned Counsel for the Assessee submitted that as per section 68 of the Act, genuineness and identity of the creditor has to be proved

by the assessee and the assessee discharged the initial onus placed upon it by not only proving the identity and genuineness of the creditors but also the creditworthiness since all the amounts were received through cheques. Learned Counsel for the Assessee adverted my attention to page 90 & 91 of the paper book to submit that Shri. V. Nagi Reddy has received the amount by cheques and paid the same to assessee-company. This is the second year of the business of the assessee-company. Page 30 to 50 of the paper book refers to the detailed explanation of the assessee as to how Shri V. Nagi Reddy has given loan to the assessee-company, the nucleus for capital of Shri V. Nagi Reddy is the sales made from 1991 onwards (page 51 to 80). Learned Counsel for the Assessee also referred to the written submissions filed before the Ld. CIT(A) to contend that both the creditors / share holders of the assessee-company have explained their sources and confirmed that they have lent the above said amount to the assessee. It is not the duty of the assessee to prove source of source and origin of origin of the money received from a creditor, whose identity is already proved. The Assessing Officer has not made any enquiry with the debtors and others. It is also not in dispute that the money has gone through banking channels. 15. The claim of the assessee is that the creditor admitted that he has sold his agricultural land and utilised the said amount for giving loans to friends and relatives. He had also obtained letters from the persons to whom he has given loans, and repaid by them, to establish the genuineness and creditworthiness. A.O. has not made any further enquiries with the source from which Shri V. Nagi Reddy received the funds but merely proceeded to disbelieve the claim, which is not justified in law. The assessee also submitted that it commenced its manufacturing operations during the A.Y. 2006-07 and gross sales during this year were only Rs. 5,39,125/- and net sales after excluding

Excise Duty were Rs. 4,71,889/-. The advance was received during the time of setting up of the project and thus the appellant cannot be said to have any unexplained cash credit in its first year of business in which it had very little turnover. It is therefore contended that the addition made by the A.O. u/s 68 is not in accordance with law. 16. In the case of Smt.Jyothi she claimed that she has received certain gifts from her parents and relatives and she was also engaged in fashion designing work. She has also filed return of income (page 81 of the paper book) to buttress the contention that in the A.Y. 2007-08 she declared income from fashion designing which was accepted by the Assessing Officer. It was also stated that the gift amounts and interest thereon, apart from income from fashion designing work, was utilised for advancing it to the assessee-company. The loanee had filed her return of income even for the A.Y. 2003-2004 declaring income of Rs. 76,800/- from fashion designing work apart from return of income filed for the A.Y. 2007-08. The creditor’s husband has also explained in his letter that he had lent Rs. 2 lakhs to his wife Smt. Jyothi out of his business income and savings and it was also stated that the he was assessed to income tax and PAN was furnished alongwith the copy of the return of income. It is the duty of the Assessing Officer to make further enquiries and he merely disbelieved the statement of the creditors and explanation with regard to the source of the creditors so as to arbitrarily make an addition in the hands of the assessee- company. 17. On the other hand, Learned Departmental Representative objected to the admission of additional evidence and also contended that the creditworthiness is not established. She thus relied upon the order passed by the Ld. CIT(A).

than doubting by sale of 4.0 acres of agricultural land, way back in 1991. In fact documents placed before Ld. CIT(A) otherwise show that Shri V. Nagi Reddy sold some agricultural land. Thus, mere assertion that Shri V. Nagi Reddy, despite the fact that he is an income tax assessee and explained the source of funds, is not capable of advancing the loan to the assessee, cannot be considered to be based on proper material. 20. As regards admission of additional evidence, against the order of Ld. CIT(A), A.O. had not preferred any appeal, objecting the admission. In fact without authorisation by CIT, Departmental Representative cannot raise a new issue before the Tribunal. Under these circumstances, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 27th April, 2018. Sd/- (D. MANMOHAN) VICE PRESIDENT Hyderabad, Dated: 27th April, 2018.

OKK, Sr.PS Copy to