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Income Tax Appellate Tribunal, BANGALORE “SMC-C” BENCH, BANGALORE
Before: Shri George George K
O R D E R This appeal at the instance of the assessee is directed against CIT(A)’s order dated 21.09.2020. The relevant assessment year is 2012-2013.
The grounds raised read as follows:-
(i) On the facts and in the circumstances of the case, the learned CIT Appeals erred in upholding the order of the Assessing Officer in the manner in which he did. (ii) The learned CIT(A) erred in upholding the addition of Rs.14,00,000 being unsecured loan creditors under section 41(1) of the Income Tax Act, 1961. (iii) The learned CIT(A) erred in enhancing the addition made under section 41(1) of the Act from Rs.14,00,000 to Rs.14,75,000 without issuing notice of enhancement as required under the Act.
(iv) The learned CIT(A) as well as the below authorities failed to appreciate that the assessee was not required to satisfy the conditions as per section 68 of the Act, as the additions were made under section 41(1) of the Act. (v) For these and such other grounds that may arise at the time of hearing the appellant prays that the appeal may please be allowed.”
The brief facts of the case are as follows: The assessee is an individual. For the assessment year 2012-2013, the return of income was filed on 26.03.2013 declaring total income of Rs.26,63,180. The assessment was taken up for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. During the course of assessment proceedings, the A.O. noticed that the assessee has got unsecured loans to the extent of Rs.33,25,000. The A.O. asked for confirmation for the same. The assessee had furnished the details. The A.O. noticed that the assessee could not produce PAN on confirmation to the extent of Rs.14,00,000. Hence, the same was added back u/s 41(1) of the I.T.Act on account of cessation of liability. The relevant finding of the A.O. reads as follows:-
“3. On verification of the details it is noticed that the assessee has got unsecured loans to the extent of Rs.33,25,000. Confirmations were sought from the assessee to gather evidence about the unsecured loans. On examining the details of confirmations furnished, it was noticed that the assessee could not produce the PAN on the confirmations to the extent of RS.14,00,000. Hence, the same is added back u/s 41(1)( on cessation of liability.”
. Sri.M.S.Amarnath.
Aggrieved by the order of assessment in making an addition u/s 41(1) of the I.T.Act amounting to Rs.14 lakh, the assessee preferred an appeal to the first appellate authority. The CIT(A) reexamined the entire issue. The CIT(A) held that out of the total amount of unsecured loans of Rs.33,25,000, the details of the creditors to the extent of Rs.18,50,000 is available on record. According to the CIT(A), the balance credits of Rs.14,75,000 is unexplained and he added the same u/s 68 of the I.T.Act. The CIT(A) held that the assessee has failed to satisfy the three conditions as per the provisions of section 68 of the I.T.Act, namely, the identity of the creditors, capacity of the creditors and the genuineness of the transaction. Therefore, it was concluded by the CIT(A) that the addition of Rs.14,75,000 is to be made u/s 68 of the I.T.Act. In doing so, the CIT(A) enhanced the addition to Rs.14,75,000 in place of the A.O.’s addition of Rs.14,00,000.
Aggrieved by the order of the CIT(A), the assessee has filed this appeal before the Tribunal. The learned Counsel for the assessee has filed a paper book enclosing therein the submissions made before the CIT(A), the case laws relied on, copy of Vijaya Bank account wherein the loan amount is received from Smt.Roopa Manu and Sri.K.P.Manu, copy of the return of income along with financials for the year ending 31.03.2012, etc. The learned AR also filed a petition for admission of additional evidence under Rule 29 of the ITAT Rules, 1963. The learned AR has filed the confirmation of Smt.Shamala and her PAN card copy. It was further submitted that the addition u/s 41(1) and u/s 68 of the . Sri.M.S.Amarnath. I.T.Act is not sustainable in the facts of the given case. It was submitted by the learned AR that the loan amount received from Smt.Roopa Manu and Sri.Manu K.P. are not received in the relevant assessment year, but much prior i.e. in June 2010, hence, the addition made by the CIT(A) u/68 of the I.T.Act is unsustainable. In this context the learned relied on the order of the Tribunal in the case of ACIT v. Alvares & Thomas reported in (2015) 62 taxmann.com 286 (Bangalore- Tribunal). It was submitted by the learned AR that the order of the Tribunal in the case of ACIT v. Alvares & Thomas (supra) was confirmed by the Hon’ble Karnataka High Court in the case of CIT v. Alvares & Thomas reported in (2016) 69 taxmann.com 257 (Karnataka).
The learned Standing Counsel, on the other hand, submitted that the addition u/s 68 of the I.T.Act is perfectly justified since the amount was found credited in the books of account during the relevant assessment year. In this context, the learned Standing Counsel relied on the judgment of the Hon’ble Calcutta High Court in the case of CIT v. Orissa Steel Corporation Pvt. Ltd. reported in (1983) 144 ITR 662 (Cal).
I have heard rival submissions and perused the material on record. The CIT(A) has confirmed the addition u/s 68 of the I.T.Act in respect of loan received by the assessee from four persons. The details of loans and addition made u/s 68 of the I.T.Act are as follows:-
. Sri.M.S.Amarnath. (i) Loan taken from Ms.Shamala Rs.1,50,000 (ii) Loan taken from Mr.Ramrathana Rs.1,25,000 (iii) Loan taken from Mr.Manu K.P. Rs.6,00,000 (iv) Loan taken from Smt.Roopa Manu Rs.6,00,000 --------------- Total Rs.14,75,000 ========== I shall examine each of the above additions sustained u/s 68 of the I.T.Act, as under:-
(i) Loan taken from Ms.Shamala Rs.1,50,000 7.1 The above addition was made by the A.O. and sustained by the CIT(A) primarily for the reason that the assessee has not produced PAN card or any other documents to prove the identity of the creditor. The assessee has now produced before the ITAT copy of the PAN card and the confirmation letter from the creditor. The assessee has also filed an application under Rule 29 of ITAT Rules, 1963 for admission of the additional evidence. In the petition for admission of additional evidence, it is submitted that the Income Tax Authorities never asked for the details of PAN of the creditors. It is stated that having furnished details of repayment of loan, the assessee was under bonafide belief that would serve the purpose and no addition would be made by the Income Tax Authorities. It is prayed that the additional evidence needs to be admitted for substantial justice. The additional evidence now produced before me goes to the root of the issue and for substantial cause and justice, I admit the same. Since the additional evidence is admitted, as regards the addition made
. Sri.M.S.Amarnath. for loan taken from Smt.Shalama amounting to Rs.1,50,000, I restore the issue to the files of the A.O. The A.O. shall consider whether the loan taken for Rs.1,50,000 has been repaid. The assessee has also produced the confirmation, wherein it is clearly stated that the loan of Rs.1,50,000 was received by cheque and amount was repaid vide cheque along with interest of Rs.34,000 totaling to Rs.1,84,000 on 14.03.2014. If these facts narrated in the confirmation are true, the addition of Rs.1,50,000 is to be deleted by the A.O. It is ordered accordingly.
(ii) Loan taken from Mr.Ramrathana Rs.1,25,000 7.2 The assessee claims the loan received from Mr.Ramrathana has been repaid subsequently on 10.04.2014 vide cheque No.5593. However, the assessee has not submitted any evidence even before the Tribunal as regards the PAN and the mode of repayment of the loan. Hence, I confirm the addition of Rs.1,25,000.
(iii) Loan taken from Mr.Manu K.P. and Smt.Roopa Manu Rs.6,00,000 each.
7.3 It is the claim of the assessee that the amount of loan has been received in June 2010 that is prior to the concerned assessment year, hence, the addition cannot be made u/s 68 of the I.T.Act. From the material on record, it is not clear when this loan amount was received by the assessee. The assessee has to necessarily prove that this amount has been received by him in June 2010. If the claim of the assessee
. Sri.M.S.Amarnath. that the amount has been received not in the relevant assessment year is true, the same cannot be added u/s 68 of the I.T.Act in view of the order the ITAT in the case of ACIT v. Alvares & Thomas (supra), wherein it was held as follows:-
“11. We have given a careful consideration to the rival submissions. On almost identical facts, the Hon’ble Delhi High Court in the case of Shri Vardhman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009- 10. The provisions of sec.68 are clear inasmuch as they refer to “sum found credited in the books of account of an assessee maintained for any previous year”. Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied.”
7.3.1 The order of the Tribunal was also confirmed by the Hon’ble Karnataka High Court in the case of CIT v. Alvares & Thomas (supra). Moreover, in this case, the assessee has contended that the amount of loan taken from both Sri.Manu K.P. and Smt.Roopa Manu has been paid in the subsequent year. I am of the view that the matter needs to be examined afresh by the A.O. The A.O. is directed to delete the addition u/s 68 of the I.T.Act in respect of loans received from Sri Manu K.P. and Smt.Roopa Manu, if the assessee is able to prove that loan amount has been repaid (claim of the assessee it has been repaid in the year 2014).
. Sri.M.S.Amarnath. 8.4 It is also to mentioned that the CIT(A) has enhanced the addition to Rs.14,75,000 instead of Rs.14,00,000 made by the A.O. It is not clear whether the CIT(A) has served enhancement notice to the assessee. Without serving enhancement notice, it is settled position of law that no enhancement can be made by the CIT(A). Therefore, I direct the A.O., after examining the issues that are restored to him, the total addition cannot exceed more than Rs.14,00,000. (since I have confirmed an addition of Rs.1,25,000, the A.O. shall limit the addition, if at all required to Rs.12,75,000). It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.