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Facts
The Revenue appealed an order by the CIT(A) which deleted additions made by the AO. The AO had added Rs. 50.00 lakh under Section 68 for unsecured loans and disallowed purchases of Rs. 65,83,496/- under Section 37. The assessee was engaged in the business of construction and real estate development.
Held
The Tribunal held that the loans were received through banking channels and the identity and source of the creditors were sufficiently established. The purchases were also made through banking channels, subjected to TDS, and supported by invoices, with the net profit margin being higher than the preceding year. Therefore, the disallowances were unwarranted.
Key Issues
Whether the additions made by the AO under Section 68 for alleged unsecured loans and disallowance of purchases under Section 37 were justified.
Sections Cited
143(3), 144B, 68, 37, 44AD, 133(6)
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of Revenue pertaining to A.Y. 2018-19 is directed against the order dated 04.11.2024 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 21.09.2021 passed u/s.143(3) r.w.s.144B of the Income-tax Act, 1961 (in short ‘the Act’).
Brief facts of the case are that the assessee is an individual engaged in the business of Construction and Development of Real Estate under the name and style M/s.Chaitanya Builders and Developers. Income of Rs.40,22,320/- furnished in the return filed on 04.10.2018 for A.Y. 2018-19. Case selected for limited scrutiny for two reasons, (1) Verification of Genuineness of expenses and (2) Unsecured loans. Valid statutory notices were issued and served upon the assessee. Ld. AO carried out the assessment proceedings and after considering the submissions of the assessee firstly made addition of Rs.50.00 lakh u/s.68 of the Act for the amount received from three parties namely (1) Pawar Sivadas Damu amounting to Rs.20.00 lakh, Usha Jagdish Tisge amounting to Rs.1.00 lakh and Rupali Chandrakant Nikam at Rs.29.00 lakh. Ld. AO also made disallowance u/s.37 of the Act by not accepting the claim of purchases made from M/s. R.K. Enterprises amounting to Rs.54,70.246/- and Rahul Dasrath Jagdale amounting to Rs.11,13,250/-.
3. Aggrieved assessee preferred appeal before ld.CIT(A) and succeeded. Now the Revenue is in appeal before this Tribunal raising following grounds of appeal :
“1. On the facts and in circumstances of the case, the CIT(A) erred in deleting the addition of Rs.50,00,000/-u/s.68 by holding that the payments were routed through banking channels, whereas the creditworthiness of the loan creditors were not satisfactorily established during the assessment as well as during the remand proceedings.
2. On the facts and in circumstances of the case, the CIT(A) erred in deleting the entire addition of Rs.65.83,496/- u/s.37 even when the bills of transactions with Mr. Rahul Jagdale was not submitted during the assessment as well as during the remand proceedings.
The order of the Ld.CIT(A) may be vacated and that of the Assessing Officer may be restored.
The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary.”
4. At the outset, Ld. Counsel for the respondent-assessee submitted that in the grounds of appeal No.2 raised by the Revenue regarding addition of Rs.65,83,496/- u/s.37 of the Act. Revenue has only referred to the non-submission of bills for transactions entered into with Rahul Jagdale and it therefore means that the Revenue only wanted to raise ground for the disallowance made for the purchases at Rs.11,3,250/- since all the bills for purchases made through M/s.R.K. Enterprises were submitted before the AO. However, ld. DR submitted that the Revenue has challenged the total amount of addition deleted by ld.CIT(A).
5. We on hearing both the parties find merit in the contention of ld. DR because the total amount mentioned in ground No.2 is Rs.65,83,496/- but then reference is made for the non submission of bills from Rahul Jagdale but it does not mean that Revenue agreed to the deletion of disallowance made for purchases from M/s. R.K. Enterprises. We therefore proceed to deal with both the grounds i.e. addition u/s.68 of Rs.50.00 lakh and addition of Rs.65,83,496/- u/s.37 of the Act.
6. Ld. Departmental Representative vehemently argued supporting the order of Assessing Officer and prayed for confirming the additions/disallowance made by the AO. He also submitted that assessee failed to explain the genuineness of purchases and even in the case of Rahul Jagdale there are no invoices. Further, in the case of M/s. R.K. Enterprises bills are placed at pages 148 to 151 which show that M/s. R.K. Enterprises issued them, i.e. Bill No.5 on 01.04.2017, Bill No.6 on 10.04.2017, Bill No.7 on 26.04.2017 which means that the assessee is only customer during this period and also no GST Number is appearing in the invoices. It was thus contended that purchases are non-genuine.
7. On the other hand, Ld. Counsel for the respondent- assessee vehemently argued supporting the finding given by ld.CIT(A) and further took us through various documents placed in the paper book running into 348 pages and has also referred to various decisions mentioned in the case law paper book. It was also submitted net profit of the assessee during the year has been declared at 9.34% which is more than the net profit rate of 6.08% declared in the preceding year.
We have heard the rival submissions and perused the record placed before us. The first issue for our consideration raised by the Revenue is regarding the addition u/s.68 of the Act at Rs.50.00 lakh deleted by ld.CIT(A) which was made by the AO for the following amounts received from three parties :
(1) Pawar Sivadas Damu - Rs.20.00 lakh (2) Usha Jagdish Tisge - Rs.1.00 lakh (3) Rupali Chandrakant Nikam - Rs.29.00 lakh
We notice that the assessee has furnished complete details for the nature and source of the funds available with all the three parties. Finding of ld.CIT(A) regarding deletion of Rs.20.00 lakh in respect of loan received from Pawar Sivadas Damu reads as under :
“5.8.1 It is noted from the ledger account of 'Pawar Shivdas Damu' in the books of account of the appellant, the appellant had received loan of Rs.20,00,000/- on 07.08.2017 and the same has been credited in his bank account maintained with Saraswat Co-operative Bank Limited bearing account numbering 402100100000184. The genuineness of the receipt cannot be doubted since the loan was received through banking channel. Identity of Shri Pawar Shivdas Damu is not disputed by the FAO and JAO. As far as source of Shri
Pawar Shivdas Damu is concerned, it is noted from his bank statements that he had received Rs.63,77,059/-from Shri Baliram Damu Pawar on 03.12.2016 which was utilized for advancing loans to the appellant. Thus, the credibility of Shri Pawar Shivdas Damu cannot be doubted. The JAO erred to appreciate this fact in the remand report. The appellant need not prove the creditworthiness of Shri Baliram Damu Pawar since for this assessment year there is no requirement to prove the source of source by the appellant. Non- charging of interest by the loan creditors cannot go against the appellant as long as the loan transaction is genuine. In this regard the the Hon'ble Supreme Court decision relied by appellant in the case CIT vs. A. Raman & Co. (supra), is found to be applicable in facts of this case.
The undersigned has not come across any material on record nor from the assessment order to prove that the loan received from Shri Pawar Shivdas Damu is a non-genuine loan transaction.
5.9 From the perusal of ledger account of Shri Pawar Shivdas Damu, as submitted by appellant, it is observed that the appellant had also returned sum of Rs.4,70,000/- through banking channel during the assessment year under consideration. Further sum of Rs.18,00,000/-was adjusted against 'Adv to Pawar Balaram Shivdas' account. It transpires from the ledger account that part of the loan was adjusted against sales made by the appellant to Shri Pawar Balaram Shivdas. These facts prove that the appellant's loan transaction with Shri Pawar Shivdas Damu is a genuine transaction.
The JAO in the remand report has not come out with any material to contradict the above facts.
5.10 In view of the above factual findings, the undersigned is of the considered view that the loan of Rs.20,00,000/- received by the appellant from Shri Pawar Shivdas Damu cannot be treated as unexplained. Thus, the Assessing Officer is directed to delete the addition of Rs.20,00,000/-made by the FAO u/s.68 of the Act and to this extent the relevant grounds of the appellant is hereby allowed.”
Finding of CIT(A) with regard to the deletion of addition of Rs.29.00 lakh received from Rupali Chandrakant Nikam reads as under : S.No. Date of receipt Amount Mode Source of funds as received evident from the bank (Rs.) statement of Smt. Rupali Chandrakanth Nikam 1 14.11.2017 5,00,000 Bank This amount was transferred from the bank account of father of Smt Rupali Chandrakanth Nikam maintained with State
Bank of India bearing account numbering 30315426905.
On 14.11.2017, there was a premature withdrawal of Fixed Deposit of Shri Vinayak P Rade which was used for transferring to the appellant. Thus, the source is from the father of Smt Rupali Nikam. Chandrakanth Nikam.
2 21.11.2017 5,00,000 Bank This amount was transferred from the bank account of father of Smt Rupali Chandrakanth Nikam maintained with State Bank of India bearing account numbering 30315426905.
On 21.11.2017, there was a premature withdrawal of Fixed Deposit of Shri Vinayak P Rade which was used for transferring to the appellant. Thus, the source is from the father of Smt Rupali Nikam. Chandrakanth Nikam. 3 2811.2017 5,00,000 Bank This was transferred from the bank account of Maharashtra account 60130786531. Bank of bearing numbering 60130786531.
On 24.11.2017, she had received an amount of Rs.5,00,000/-from her father Shri Vinayak P Rade which was transferred to the appellant on 28.11.2017. Thus, the receipt of funds from her father cannot be doubted. 4 15.12.2017 5,00,000 Bank This was transferred from the bank account of Maharashtra account 60130786531. Bank of bearing numbering
60130786531.
On 24.11.2017, she had received an amount of Rs.5,00,000/-from her father Shri Vinayak P Rade which was transferred to the appellant on 28.11.2017. Thus, the receipt of funds from her father cannot be doubted. 5 18.12.2017 5,00,000 Bank This amount was transferred from the bank account of Bank of Maharashtra account numbering 60130786531.
On 16.12.2017, she had received an amount of Rs.5,80,000/- from her father Shri Vinayak P Rade which was transferred to the appellant on 18.12.2017. Thus, the receipt of funds from her father cannot be doubted. 6 05.03.2018 4,00,000 Bank This amount was transferred from the bank account of The Mahanagar Co-op Bank Ltd bearing account SB/5378. Numbering SB/5378.
On 22.02.2018, the bank balance was Rs.4,03,497.16/- out of which she had transferred Rs.4,00,000/- to the appellant on 05.03.2018.
Thus, the source is out of existing bank balance. 29,00,000
5.25 In the remand report, the JAO has not contradicted the above facts. The JAO erred in observing that the Balance Sheet of Smt Rupali Chadrakanth Nikam is not evident. She is an individual and not engaged in business, hence the question of filing Balance Sheet does not arise. The appellant has duly furnished the joint bank account statements of Shri Vinayak P Rade and Smt Anjali Rade, parents of Smt Ruplai Chandrakanth Nikam from which it is clearly evident that they have transferred the funds. In spite of which, the JAO has stated that the flow of funds of Rs.29 lakhs was not proved. It is proved beyond that the source for Smt Rupali Chadrakanth Nikam is the amount received from her father. Further, this fact is also proved from her parents bank account statements. Thus, there is no requirements to establish the source of parents of Smt Rupali Chandrakanth Nikam. The JAO commented that the pattern of flow of funds prove that the unexplained funds were routed through banking channel. This is a bald statement of the JAO without any evidence. 5.26 In view of the above factual finding, it is proved beyond doubt that Smt Rupali Chandrakanth Nikam is having adequate source to lend the amount to the appellant. From the perusal of bank statements of Smt Rupali Chandrakanth Nikam, it is proved beyond doubt that she had received the amounts from her father Shri Vinayak P Rade. The appellant is found to have duly substantiated the source of Smt Rupali Chandrakanth Nikam and is not obliged to prove the source of Shri Vinayak P Rade. Thus, the undersigned is of the considered view that the addition of Rs.29,00,000/- made in the hands of the appellant u/s.68 of the Act is unwarranted. Further, pointed out againg that in response to the notice issued u/s.133(6) of the Act, Smt Rupali Chandrakanth Nikam has submitted that the sum advanced was towards purchase of flat treated as loan, due to delay in registration process. However, subsequently flat was sold by the appellant to her. Since the flat was subsequently registered, the absence of agreement has no impact on the case of the appellant. It is clear from the findings of the FAO that the loan was subsequently converted into a sale. Thus, provisions of section 68 of the Act cannot be applied in respect of a sale transaction. Under these circumstances, the AO is hereby directed to delete the addition of Rs.29,00,000/- made by the FAO u/s.68 of the Act.”
So far as the loan of Rs.1.00 lakh from Usha Jagdish Tisge is concerned, ld.CIT(A) deleted the addition observing that the Identity of Usha Jagdish Tisge is not in doubt. Loan iss received through banking channel and this fact has been admitted by the Jurisdictional Assessing Officer in the remand report. Further, it is observed that loan was given on 07.06.2016 and as on that date there was balance of Rs.4,63,301/- in the bank account of the assessee held with State Bank of India, Kalaboli Branch. Further Usha Jagdish Tisge is a retired Govt. employee and considering these facts the impugned addition of Rs.1.00 lakh was deleted.
From the perusal of the above discussion and the detailed finding of ld.CIT(A) narrating the complete details which remain uncontroverted at the end of ld. Departmental Representative, we fail to find any infirmity in the finding of ld.CIT(A) deleting the impugned addition of Rs.50.00 lakh. Ground No. 1 raised by the Revenue is dismissed.
As regards ground No.2 raised by the Revenue for the deletion of disallowance of purchase of Rs.65,83,496/- we note that the assessee made purchases from Rahul Jagdale at Rs.11,13,250/- and produced invoices. Further, with regard to M/s. R.K. Enterprises even though the bills have been filed but the details filed partially supports the contention of ld. Counsel for the assessee. Net profit of 9.34% is declared by the assessee and the turnover of the assessee has reached to the extent of Rs.4.64 crore during the year as against 0.30 crore in the preceding year. Finding of ld.CIT(A) on this issue reads as follows :
“6.7 During the appellate proceedings, the appellant furnished the ledger accounts of the above parties, copy of invoices and bank account statements. From the perusal of the invoices, it is noted that the payments were made towards labour and material which is very much essential for the construction business of the appellant. Thus, the same cannot be said to be not for the business of the appellant. Further, payments made to both the parties were subjected to TDS. In the remand report, the JAO has not contradicted these facts. It is further observed that the payments were made through banking channel. Genuineness of the expenses cannot be doubted when the payments are subjected to TDS and paid through banking channel. It is not the case of the JAO that the payments as reflected in the ledger accounts and bank account were false entries. Mere non- compliance to the notice issued u/s.133(6) can never be a ground to doubt the genuineness expenses claimed by the appellant. There is no report from verification unit to confirm that these entities are not available on the said address. During this remand report the JAO could have verified. There is no material on record such as investigation wing report or information from any other investigating agency such as from GST department etc, which indicates that that the payments made to both the aforesaid two parties are bogus. It is not the case of the FAO and JAO that the parties were not in existence. Non charging of GST by the vendor can never be a ground to disallow the payments in the hands of the appellant. It could have been brought to GST net by subsequent action of GST team.
It is further submitted that NP ratio of the appellant for the impugned assessment year is 9.34% which is more than the NP Ratio of 6.08% declared for the earlier A.Y.2017-18. Further, NP ratio of assessment year under consideration is also more than the preceding three years average NP Ratio of 8.75%. Under these circumstances the undersigned is of the considered opinion that inflation of expenses by booking these two expenses as bogus is ruled out when there is an improvement in NP ratio. This aspect is just a passing remark to decide this issue. To conclude, it found that it is not the case of the FAO and JAO that the appellant had received cash back from the persons to whom the payments were made. The JAO failed to bring on record contradictory evidences disproving the genuineness of the expenses claimed by the appellant. It is noted that the payments were made towards labour and material which is very much essential for the construction business of the appellant. Thus, the same cannot be said to be not for the business of the appellant. Further, payments made to both the parties were subjected to TDS. In the remand report, the JAO has not contradicted these facts. It is further observed that the payments were made through banking channel. Genuineness of the expenses cannot be doubted when the payments are subjected to TDS and paid through banking channel. In view of these glaring facts,the undersigned sees no reason to disallow the expenses claimed by the appellant just because there was no response to notices issued. Thus, its hereby held that the disallowance of Rs.65,83,496/- made by the FAO u/s.37(1) as unwarranted and therefore the same additions are hereby deleted. The Ground of Appeal raised by the appellant upon this issue is hereby treated as allowed.”
Under these given facts where the alleged expenditure is duly supported with Invoices, payment made through banking channel, Tax deducted at Source, Sales/Gross Receipts quantum not in dispute, we also observe that assessee has declared net profit of 9.34% along with increase in the turnover during the year by almost 15 times. Even for sake of argument it is assumed that the alleged purchases are non genuine, then also, last resort will be to estimate the profits on the total turnover. There has been plethora of cases where such estimation of profit has been made to the extent of 8% applying Presumptive Rate of Taxation u/s.44AD of the Act where the assessee has not maintained proper/ no books of account. Therefore, since the net profit declared by the assessee is higher than 8%, we fail to find any merit in the ground No.2 raised by the Revenue. Eventhough ld. CIT(A) has given a finding accepting the genuineness of purchases, we uphold the same on the ground that assessee has offered better net profit rate of 9.34% which is above 8% provided u/s.44AD of the Act. Grounds of appeal No.2 raised by the Revenue is also dismissed.
15. Other grounds being general in nature needs no adjudication.
In the result, appeal of the Revenue is dismissed.
Order pronounced on this 16th day of May, 2025.