MOHAN DAGADU CHOUGALE,KOLHAPUR vs. ACIT, CENTRAL CIRCLE, KOLHAPUR

The Ld. Counsel for the assessee at the outset did not press grounds of appeal No.4, 5 and 6 for which the Ld. DR has no objection. Accordingly, the said grounds are dismissed as ‘not pressed’. Ground of appeal No.9 being general in nature, is also dismissed.

Facts of the case, in brief, are that the assessee is an individual and engaged in business of milk and milk products. He filed his return of income on 02.01.2020 declaring total income of Rs.17,99,290/-. A survey action u/s 133A of the Act was conducted in the case of the assessee on 20.02.2020 during which a red colour note book, which is having sales figures for the period from 01.01.2020 to 20.02.2020, was found. The assessee did not produce the accounts books at the time of survey on the ground that he was not in a position to readily produce the same. Therefore, the authorized officer of the survey team summed up the total sales recorded in the red colour book for the above period and found that the total of such sales came to Rs.33,04,970/- for 51 days. The assessee had also confirmed the correctness of the nature of the entries in his statement recorded u/s 131 of the Act during the course of survey. Since the assessee was not in a position to produce the books of account, the authorized officer estimated the average monthly sales at 20 lakh and estimated the turnover for the year at Rs.2.40 crore. The assessee had also submitted the tentative trading account for the period from 01.04.2019 to 20.02.2020 in support of the correctness of his financial statements. On the basis of tentative trading account filed by the assessee the difference in sales was worked out to Rs.90,66,185/-. Applying the GP rate of 18% shown by the assessee, addition of Rs.16,31,913/- was made by the Assessing Officer in the order passed u/s 143(3) of the Act by invoking the provisions of section 68 of the Act. Similarly, survey team had also inventorized the stock found as on the date of survey and valued the stock with the help of the assessee which comes to Rs.22,40,052/-. When this was compared with the closing stock as per tentative trading account which is at Rs.4,18,260/-, a difference of Rs.18,21,792/- was found. Since the assessee had confirmed the excess stock found but could not explain the excess stock, he agreed to offer the same as additional income over and above his regular business income. The Assessing Officer in the order passed u/s 143(3) of the Act brought to tax the same u/s 69 r.w.s. 115BBE of the Act.

In appeal, the Ld. CIT(A) sustained the above two additions.

Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee at the outset submitted that although the assessee had admitted the excess stock of Rs.18,21,792/- and the GP of Rs.16,31,913/-, the benefit of telescoping should be given. Further, the amount cannot be added by invoking the provisions of section 69 r.w.s. 115BBE of the Act but should be taxed at normal rates. For the above proposition, he relied on the decision of the Coordinate Bench of the Tribunal in the case of Yash Construction Co. vs. ACIT vide & 677/PUN/2024, for assessment years 2017-18 and 2018-19, order dated 31.07.2024.

The Ld. DR on the other hand supported the orders of the Assessing Officer and the Ld. CIT(A).

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that on the basis of incriminating documents found during the course of survey and in absence of production of books of account, the survey team determined the excess stock found at the time of survey amounting to Rs.18,21,792/-. Similarly, by extrapolating the sales of the assessee on the basis of entries found in the red colour book for a period of 51 days the survey team made the addition on account of suppressed GP at Rs.16,31,913/-. Since the addition on account of suppressed GP was made by extrapolating the sales figure and the excess stock found during the survey, therefore, we find merit in the submission of the Ld. Counsel for the assessee that the benefit of telescoping should be given. We, therefore, modify the order of the Ld. CIT(A) and direct the Assessing Officer to restrict the addition to Rs.1,89,879/- being the difference between the excess stock of Rs.18,21,792/- and the suppressed GP of Rs.16,31,913/-.

Further, we find the Coordinate Benches of the Tribunal are taking the consistent view that the excess stock found during the course of survey should be taxed as business income at normal rate. The Coordinate Pune Bench of the Tribunal in the case of Yash Construction Co. vs. ACIT (supra) has taken the view holding that the excess stock found during the course of survey should be treated as business income to be taxed at normal rate. We, therefore, set aside the order of the Ld. CIT(A) on this issue and direct the Assessing Officer to tax the amount of Rs.1,89,879/- at normal rate instead of u/s 69 r.w.s. 115BBE of the Act. The ground Nos.1 and 2 are accordingly partly allowed.

Ground No.3 relates to the order of the Ld. CIT(A) confirming the addition of Rs.70,11,472/- made by the Assessing Officer u/s 68 of the Act.

Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the tax auditor in the tax audit report has provided the particulars of each specified sum which is taken as unsecured loan during the year as per column No.31(b) of the audit report. The details of the same are as under:

During the course of assessment proceedings the Assessing Officer asked the assessee to prove the identity and creditworthiness of the above parties and genuineness of the transactions. In response to the same, the assessee stated that he had provided the PAN numbers to prove their identity and the bank accounts of the assessee to prove the genuineness of the transactions. However, in absence of production of the persons or their confirmation letters or bank statements of the above persons, the Assessing Officer held that the assessee could not prove the creditworthiness of the said persons. He, therefore, invoking the provisions of section 68 r.w.s. 115BBE of the Act made addition of Rs.70,11,472/-.

In appeal the Ld. CIT(A) confirmed the above addition by observing as under: “28. I have considered the facts of the case and the submissions filed by the appellant. There is no dispute on the fact that the assessee has taken fresh loans from the persons stated in the assessment order. It is also not in dispute that except the PAN numbers, no other document such as confirmations from the loan creditors, copy of bank statement of loan creditors, copies of ITRs filed by loan creditors was ever filed before the assessing officer. Before me, the appellant has filed copies of some bank statements of loan creditors without explaining as to why the same were not filed before the assessing officer. The situations under which, additional evidence can be admitted by the CIT(A) has been laid down in Rule 48A of the Act. The appellant has neither filed any application under Rule 46A of the Act nor has explained as to why the said evidences (bank statements) were not filed before the AO and how his case is covered by the provisions of Rule 46A of the Act. In view of these facts, the copies of bank statements of some of the loan creditors cannot be admitted by the undersigned. 29. In any case, the status of filing of ITR, bank statement, copies of ITR, etc of the loan creditors as on date is as under Name Amount Confirmation Copy of Copy of bank of Loan ITR statement Kapil Mohan 43,45,000 Not filed Not filed Part bank Chougule statement filed during the appeal proceedings. The source of payments made is clear not clear. Pandurang Lagu 5,34,472 Not filed Not filed Part bank statement filed during the appeal proceedings. The source of payments made is not clear Sou Manisha 6,88,000 Not filed Not filed Part bank Mohan Chougule statement filed during the appeal proceedings. There is cash deposit just before the payment to the appellant Koustubh Mohan 10,00,000 Not filed Not filed Part bank Chougule statement filed during the appeal proceedings. The source of payments made is not clear Mohan Dagdu 1,44,000 Not filed Not filed No bank Chougule (HUF) statement filed Sunil Hambirao 3,00,000 Not filed Not filed bank statement Shelar filed during the appeal proceedings. There is a cash deposit of Rs. 2,00,000/- just before the payment appellant.

It is a well settled legal position that onus of proving the source of money found to have been received by an assessee is on him. If the assessee has failed to satisfactorily explain these credits, it is open for the revenue to hold that the sum credited, is income of the assessee and no further burden lies on the revenue. For this proposition reliance is placed on the decision of Hon. Supreme Court in the case of Roshan Di Hatti vs CIT 107 ITR 938 (SC) and Kale Khan Mohammad Hanif vs CIT 50 ITR 1 (SC).

The Ld. Counsel for the assessee at the outset submitted that the assessee had given the bank statements and confirmation letters but inadvertently could not furnish the copies of income tax returns and balance sheets. Referring to page 63 of the paper book, he drew the attention of the Bench to the same which gives the details of various documents and which are as under: Details of Unsecured loans Name PAN Amount Remark Documents Kapil Mohan Chougule BDQPC7050L 43,45,000 Loan reflected in Balance sheet Confirmation letter of Kapil Chougale. Source of Ledger Account loan given is sale proceeds of Confirmation land and accumulated income Acknowledgement of Return Balance Sheet Profit and loss ac Computation Index of sale of land Pandurang Chintamani AAKPL6732E 534472 Loan given out of my income Confirmation letter Lagu and amount received from son Ledger Account Mukund Lagu who is employed Confirmation in Sweedan transferred amount Acknowledgment of through bank Amount Return Rs.188639 and 45833 returned Bank Statements in the same year and remaining amount is also repaid. Manisha Mohan AGPPC8686C 6,88,000 Loan given out of my business Confirmation letter Chougule income from Dairy. The Ledger Account amount is repaid Confirmation Acknowledgement of Return Balance Sheet Profit and loss ac Computation Koustubh Mohan CCOPC1954M 10,00,000 Loan given out of sale Confirmation letter Chougule proceeds of land Acknowledgement of Return Balance Sheet Profit and loss ac Computation Index of sale of land Sunil Shelar IBKPS1104Q 300000 Loan given out of loan taken on Confirmation letter property. The loan amount is Ledger Account repaid. Confirmation Bank Statements Mohan Chougale HUF AAOHM4691K 144000 Loan given out of bank Confirmation letter balance. Also the loan amount Bank Statement is repaid

He submitted that the returns of the loan creditors were filed much prior to the completion of the assessment by the Assessing Officer on 12.02.2022.

The Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) and submitted that for allowing the cash credit / unsecured loan, the assessee has to prove the identity and creditworthiness of the loan creditors and genuineness of the transactions. The assessee in the instant case has failed to prove the creditworthiness of the concerned loan creditors, therefore, the order of the Ld. CIT(A) should be upheld.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the Ld. CIT(A) did not accept the copies of bank statements of some of the loan creditors on the ground that the assessee could not explain the reasons for not filing the same before the Assessing Officer. It is an admitted fact that the assessee has taken unsecured loans to the tune of Rs.70,11,472/- during the year. As per the provisions of section 68 of the Act, for accepting any cash credit the onus always lies on the assessee to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions. In the instant case the assessee filed certain details before the Assessing Officer which were not sufficient to accept the creditworthiness of the loan creditors. Although the assessee has filed the bank statements of some of the loan creditors before the Ld. CIT(A), he did not accept the same on the ground that the assessee could not explain the reasons as to why the same were not filed before the Assessing Officer and the filing of those documents are not in accordance with Rule 46A of the Income Tax Rules, 1962. It is the submission of the Ld. Counsel for the assessee that the loan creditors have declared such loan amounts in their respective Balance Sheets which were filed along with the returns of income prior to the completion of the assessment. It is also his submission that given an opportunity, the assessee is in a position to substantiate his case with evidence to the satisfaction of the Assessing Officer regarding the identity and creditworthiness of the loan creditors and genuineness of the transactions. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee for proving the identity and creditworthiness of the loan creditors and genuineness of the transactions and decide the issue as per fact and law. We hold and direct accordingly. The ground No.3 raised by the assessee on this issue is accordingly allowed for statistical purposes.

Ground No.7 relates to the order of the Ld. CIT(A) in confirming the addition of Rs.49,62,507/- made by the Assessing Officer u/s 68 of the Act on account of increase in capital.

Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings while going through the capital account of the assessee noted that the assessee has increased his capital of Rs.49,62,507/- under the head ‘by self account’. He therefore, asked the assessee to explain the nature of such credits. In absence of any reply given by the assessee on this issue, the Assessing Officer made addition of Rs.49,62,507/- by invoking the provisions of section 68 r.w.s. 115BBE of the Act.

In appeal, the Ld. CIT(A) confirmed the addition made by the Assessing Officer by observing as under: “41. I have considered the facts of the case and the submissions made by the appellant. As per assessment order, the appellant has increased his capital by Rs.49,62,507/- under the head 'by self-account’. When asked, the assessee could not file any submission before the assessing officer. The AO accordingly made addition u/s 68 of the Act. A perusal of the reply filed before me suggests that the appellant has made a general submission without specifically explaining the source of said increase in his capital. Although, the appellant has submitted that the said increase was on account of funds provided by his relatives/friends, however, no details of these relatives/friends have been furnished. It is a well settled legal position that primary onus for explaining any credit entry in his books, is on the assessee and in the absence of same, the amount credited, is liable to be added u/s 68 of the Act. In the present case, the appellant has failed to discharge this onus u/s 68 of the Act. In the absence of any specific explanation regarding the source of such increase in his capital, the addition of Rs.49,02,507/- made by the assessing officer is upheld. The ground raised by the appellant is DISMISSED.”

The Ld. Counsel for the assessee referring to page 37 of the paper book submitted that the assessee has introduced the capital by obtaining this amount from various close relatives who had given the same to the assessee out of love and affection for betterment of his business. Referring to page 101 of the paper book, he drew the attention of the Bench to the same and submitted that the same reflects the details of amount of Rs.49,62,507/-. He submitted that an amount of Rs.28,30,000/- is the opening balance. He submitted that these details could not be produced before the Assessing Officer or the Ld. CIT(A). Therefore, given an opportunity, the assessee is in a position to substantiate his case by filing the requisite details before the Assessing Officer since all these details are already reflected in the books of account.

The Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) on this issue.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that due to non submission of any details before the Assessing Officer regarding the details of increase in the capital by Rs.49,62,507/-, the Assessing Officer made addition of the same. We find in absence of any valid explanation, the Ld. CIT(A) also dismissed the ground raised by the assessee, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the introduction of capital by the assessee is out of the funds given by close relations for betterment of the business, the details of which are already available in the cash book of the assessee. Further, an amount of Rs.28,30,000/- is the opening capital. It is also his submission that given an opportunity, the assessee is in a position to furnish the full details before the Assessing Officer. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee to substantiate his case by furnishing all the details and decide the issue as

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.