INCOME TAX OFFICER, WARD- BHIWADI vs. SHRI SATISH KUMAR, ALWAR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 637/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke Income Tax Officer, Satish Kumar, Vs. Ward- Bhiwadi. J-501-502, Krish Vatika, Bhiwadi, Teh-Tijara, district- Alwar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AIEPK 2046 C vihykFkhZ@Appellant izR;FkhZ@Respondent izR;k{ksi.k@C.O. No. 33/JP/2017 (Arising out of vk;dj vihy la-@ITA No. 637/JP/2017) fu/kZkj.k o"kZ@Assessment Year 2012-13 cuke Satish Kumar, Income Tax Officer, Vs. J-501-502, Krish Vatika, Alwar Bye Ward- Bhiwadi. Pass Road, Bhiwadi. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AIEPK 2046 C izR;k{ksid@Objector izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Rajendra Jha fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA) lquokbZ dh rkjh[k@ Date of Hearing : 17/11/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/11/2017 vkns'k@ ORDER PER: BHAGCHAND, A.M. The appeal by revenue and cross objection by assessee arise from the order dated 25/05/2017 of Ld. CIT (A), Alwar pertaining to the A.Y. 2012-13.

ITA 637/JP/2017 & C.O. 33/JP/2017_ 2 Ito Vs Satish Kumar 2. The return of income was filed on 29/09/2012 declaring total

income of Rs. 13,67,188/-. The case was selected for scrutiny and the

assessment was filed U/s 143(3) of the Income Tax Act, 1961 (in short

the Act) on 23/03/2015 at an income of Rs. 82,28,540/-.

has granted part relief on certain issues. Now the revenue is in appeal

and the assessee is in C.O. before the ITAT by taking following grounds

of appeal:

Grounds in Revenue’s Appeal. “(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 60,49,000/- made by the A.O. U/s 68 of the I.T. Act, 1961 without appreciating the material facts of the case. (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of Rs. 50,000/- made by the A.O. U/s 80C of the I.T. Act, 1961.” Grounds in assessee’s Cross Objection “(i) The ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 3,47,600/- being 25% of the commission paid to three persons. (ii) The ld. CIT(A) has erred on facts and in law in confirming the rejection of books of account and trading addition of Rs. 3,99,167/-.”

ITA 637/JP/2017 & C.O. 33/JP/2017_ 3 Ito Vs Satish Kumar 4. In the ground No. 1 of revenue’s appeal, the issue involved is

deleting the addition of Rs. 60,49,000/- made by the Assessing Officer U/s

68 of the Act. The ld. CIT(A) has granted relief to the assessee by holding

as under:

“6.5 I have gone through the assessment order as well as submissions made by the appellant. The appellant has filed additional evidences and cited the reasons for not been able to file before the A.O. The reasons given are taken into consideration and the additional evidences submitted during the appellant proceedings have been taken on record under rule 46A of the Income Tax Rules, 1962 as the same are important evidences required for adjudication of the grounds of appeal. The additional evidences were sent to the A.O for his examination and comments. The A.O has submitted the remand report vide letter dated: 28/04/2017. The copy of the remand report was given to the AR of the appellant for cross reply. It has also been taken into account. All the facts and submissions have been taken into account and following facts have emerged; 1. That the appellant is a scrap dealer during the year under consideration. 2. That the appellant had raised an amount of Rs. 67, 49,000/- during the year under consideration and out of this an amount of Rs. 7 Lakhs was repaid during the year itself leaving amount of Rs. 60,49,000/- outstanding at the end of the relevant year. 3. That all the 6 persons are regular income tax assessee. 4. That all the loan amount were advanced through banking channel. 5. That identities of all the 6 persons are established.

ITA 637/JP/2017 & C.O. 33/JP/2017_ 4 Ito Vs Satish Kumar 6. That the A.O has added the amount of Rs. 60,49,000/- under section 68 of the Act by concluding that the credit worthiness of the persons were not established. 7. That the appellant has cited various court judgments in favour of its claim that the onus on the part of the appellant has been discharged and the addition u/s 68 is not justified. 6.5.2 I have considered the above mentioned facts of the case. The provision contained in Section 68 of Income Tax Act reads as under:- "68. Cash credits.-Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10."

Thus, the provision of the section confers upon the assessee to give nature and source of the credit. In this case the appellant had provided following documents to the A.O during assessment proceedings; 1. Name and address of the persons. 2. Copies of income Tax returns. 3. Copy of bank accounts.

ITA 637/JP/2017 & C.O. 33/JP/2017_ 5 Ito Vs Satish Kumar That the factual position of the amounts of loan raised during the year have been tabulated as under; Name of the Amount of Whether Income Confirmations Whether THROUGH person (S/Sh.) loan(in Rs.) A/C PAYEE CHEQUE tax assessee Filed YES YES Amit 5,00,000/- YES YES M/s Balaji 12,99,000/- YES YES Enterprises YES YES YES Smt. Hemlata 9,50,000/- Pankaj Bansal 3,00,000/- YES YES YES YES YES YES R P Singh 15,00,000/- YES YES YES Satish 15,00,000/- Mendiratta & Sons

I have also taken into consideration the remand report of the A.O on the issue. The relevant part of the A.O’s report is as under:-

Assessee has preferred appeal before your good self and filed submission which was forwarded to this office for remand. Assessee was provided an opportunity to file other supporting documents regarding his claim vide this office letter no. 1961 dated 19.01.2017. The assessee has filed his reply on 03.03.2017. The assessee has filed the documents to prove the identity of persons who advanced the loan, documentary evidences to substantiate the genuineness of transaction and proof regarding creditworthiness of the persons who advanced the loan.

The documents filed by the assessee relevant to the persons from whom assessee has received the loan during the year under consideration is as under: S. Name of the Amount of Loan Confirmation of the party Copy of ITR/PAN No. persons from whom {As proof of identity and (As proof of loan was taken genuineness of transaction) creditworthiness) Amit 5,00,000/- Yes PAN Card 1 M/s Balaji 2 Enterprises 12,99,000/- Yes PAN Card 3 Hemlata 9,50,000/- Yes ITR 4 Pankaj Bansal 3,00,000/- Yes ITR 5 R.P Singh 15,00,000/- Yes ITR & PAN Card 6 Satish Mendiratta & 15,00,000/- Yes PAN Card Sons

ITA 637/JP/2017 & C.O. 33/JP/2017_ 6 Ito Vs Satish Kumar The assessee has also filed his bank account statement in which transaction related to above mentioned parties for above said loan was highlighted and tried to indicate that whole transactions were completed through banking channel. But assessee has not filed copy of bank statements of above persons form whom loan was taken by the assessee. These facts are submitted for your kind consideration.

I have considered the above mentioned facts. In this regard I have also taken into consideration Hon’ble Delhi High Court judgment which has also discussed the parameters set by the Hon’ble Supreme Court in the case of CIT Vs Lovely exports Ltd. It has observed as under;

Division Bench of Delhi high Court by judgment rendered on 31.01.2011 reported as CIT v. Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Del.) = 2011-TIQL-69- HC-DEL-IT. Taking note of the jurisprudential development on the subject as culminating in judgment of Supreme Court in CIT v. Lovely Exports Pvt. Ltd.(supra), it was held that the initial burden is upon the assessee to explain the nature and source of the share application money and in order to discharge this onus, the assessee should prove (a) the identity of shareholder: (b) genuineness of the transaction; and (c) creditworthiness of shareholders. It was further observed that for discharging the above burden, the assessee must file some documents or produce the shareholder to prove his identity. In the case of subscriber being a company details in the form of registered address or PAN identity, etc. would suffice. The genuineness of the transaction may be demonstrated by showing that the assessee had, in fact, received money from the applicant shareholder and that it had come not from the coffers of the assessee but from that of the applicant shareholder. As to the creditworthiness or financial strength of the subscriber. The proof could include banks statements of the subscriber showing sufficient balance in its kitty to enable it to subscribe.

Therefore, taking into account factual matrix of the case and the parameters to determine the status of onus on the assessee as are discussed in the above mentioned judgments, it is my considered view that the appellant has discharged its onus w.r.t. the credit of Rs.60,49,000/- received from the above mentioned persons. Accordingly,

ITA 637/JP/2017 & C.O. 33/JP/2017_ 7 Ito Vs Satish Kumar the addition of Rs. 60,49,000/- u/s 68 is not justified, hence, deleted. Appellant’s ground of appeal on the issue is allowed.”

also pleaded that the ld. CIT(A) simply accepted the PAN and ITR as

proof of creditworthiness. Simply providing PAN Card and copy of ITR are

not sufficient to establish the creditworthiness of the creditors. The

assessee has to establish the creditworthiness of each and every creditor

by submitting necessary documents. These documents must establish

that these people were having capacity to advance to the assessee. In

absence of same, the ld. CIT(A) was completely unjustified in accepting

the contention of the assessee. He pleaded that the order of the ld.

CIT(A) may be reversed.

on this issue as under:

ITA 637/JP/2017 & C.O. 33/JP/2017_ 8 Ito Vs Satish Kumar 2. In the above facts, the AO having accepted the identity, genuineness of the transaction and credit worthiness of the creditor, the Ld. CIT(A) has rightly deleted the addition as per the finding given in Para 6.5 of the order, pages 7-9. He relied on the following case laws:

In view of above, the addition made by the AO is rightly deleted by the Ld. CIT(A) and therefore, the ground of the department be dismissed.

perused the material available on the record. We have also gone through

the various case laws relied upon by the ld AR and also the factual matrix

of the issue under consideration. We have noticed that Shri Amit had

ITA 637/JP/2017 & C.O. 33/JP/2017_ 9 Ito Vs Satish Kumar advanced Rs. 5.00 lacs to the assessee and the ld. CIT(A) has simply

accepted the PAN as establishing the creditworthiness of this creditor. In

our considered view, simply PAN card can not establish the capacity of

the lender. The PAN card in itself is not a certificate to establish the

creditworthiness of any of the creditor. Similarly in the case of M/s Balaji

Enterprises, who has advanced Rs. 12,99,000/- to the assessee. PAN card

was accepted by the ld. CIT(A) as evidence for establishing the

creditworthiness. In our considered view, that is not a sufficient proof to

establish creditworthiness. Similarly in the case of Hemlata, who has

advanced Rs. 9,50,000/- to the assessee, a copy of the ITR was made a

basis for establishing the creditworthiness. From this ITR (placed at page

No. 14 of the paper book), it is noticed that the gross total income of

Hemlata was only Rs. 1,45,655/- while the advance made by her was Rs.

9,50,000/-. In the case of Pankaj Bansal also the returned income was Rs.

95,969/- while the advance was made at Rs. 3,00,000/-. In the case of

Singh, the advance received by the assessee was Rs. 15,00,000/-. The

returned income was only Rs. 8,16,000/-. Copies of ITRs are not sufficient

to establish the creditworthiness of any of the creditor. In the case of

Satish Mendiratta (HUF), the advance received by the assessee is of Rs.

15,00,000 lacs and the returned income was only Rs. 3,23,670/-. Thus,

the ITR in itself is not a sufficient evidence to establish the

ITA 637/JP/2017 & C.O. 33/JP/2017_ 10 Ito Vs Satish Kumar creditworthiness of Satish Mendiratta (HUF). Thus, in all the creditors’

case, the reliance of the ld. CIT(A) was only on the PAN card or the ITR,

was not sufficient to establish the creditworthiness of these people.

Further, it is also noticed that the Assessing Officer was asked to submit

the remand report and he has noted that the assessee has not filed copy

of bank statement of the persons from whom the loans were taken by the

assessee. However, the Assessing Officer has not asked the assessee to

submit such documents in the remand proceedings. Considering the

totality of the facts and circumstances of the case, we find it appropriate

to restore the issue to the file of the Assessing Officer wherein the

assessee shall be at liberty to file necessary documents to establish the

creditworthiness of all the creditors and the Assessing Officer shall decide

the issue afresh.

deleting the disallowance of Rs. 50,000/- made by the Assessing Officer

U/s 80C of the Act. The ld. CIT(A) has granted relief to the assessee by

holding as under:

“5.3 I have considered the evidence filed in support of claim made for payment of insurance premium amounting to Rs. 50,000/- under Section 80C paid to Max Life Insurance dated 18/09/2011. The appellant has submitted that during the assessment proceedings he could file proof for payment of Rs. 50,000/- insurance premium only and could not file proof for the balance amount claimed. I

ITA 637/JP/2017 & C.O. 33/JP/2017_ 11 Ito Vs Satish Kumar have considered the appellant submission and the evidence of payment of Rs. 50,000/- towards insurance premium. Accordingly, the deduction of Rs. 50,000/- is allowed under section 80C of the Act. However, in absence of proof for payment of Rs. 15,000/- to qualify for deduction U/s 80D of the Act, the same is rejected. Accordingly, the appellant’s ground of appeal on the issue is partly allowed.”

as under:

In view of above, the order of Ld. CIT(A) be upheld by dismissing the ground of department.

ITA 637/JP/2017 & C.O. 33/JP/2017_ 12 Ito Vs Satish Kumar 11. After hearing both the sides on this issue and considering the

pleadings, we are of the view that the ld. CIT(A) was justified in deleting

the addition, therefore we sustain the order of the ld. CIT(A) on this

ground.

confirming the disallowance of Rs. 3,47,600/- being 25% of the

commission paid to three persons. The ld. CIT(A) has dealt this issue in

his order at para 7.3., which is as reproduced as under:

“7.3 I have gone through the assessment order as well as submissions made by the appellant. I have considered the facts of the case. The onus lies on the assessee to prove that the commission has been paid for the purpose of earning profit in the business and that the amount of commission commensurate with the type of services rendered by them. In this case, the payments of commission were made to persons covered U/s 40A. In my considered view the onus has not been fully discharged by the assessee in this regard. Accordingly, the A.O is justified in disallowing 25% of the commission amount paid to Sh. Rati Ram, Sh. Mukesh kumar & Sh. Kapil Dev. Accordingly, the addition of Rs. 3,47,600/- is sustained and appellant’s ground of appeal is dismissed on this issue.”

ITA 637/JP/2017 & C.O. 33/JP/2017_ 13 Ito Vs Satish Kumar 2. It is submitted that all the three persons to whom commission is paid are regularly assessed to tax and have included the commission so credited to their account in their income. Assessee has deducted tax at source on the amount so credited. Only because payment is made to the relatives cannot be a reason to hold that the expenses are not wholly and exclusively for the purpose of business or to invoke section 40A(2)(b) without giving a finding that payment so made is excessive or unreasonable. In view of above, the disallowance confirmed by CIT(A) be directed to be deleted.

authorities below.

disallowance was made only 25% of the expenses debited under the head

‘Commission Paid’ by invoking the provisions of Section 40A((2)(b) of the

Act and also that the entire expenses were not wholly and exclusively for

the purpose of business of the assessee. It is noticed that all the three

persons were regularly assessed to tax and necessary TDS was also

deducted. It was paid to the persons, who were relatives of the assessee.

It was not wholly and exclusively for the purpose of business. It was

excessive payment in view of the provisions of Section 40A of the Act.

Thus, there is no clear cut finding that on what basis this payment

ITA 637/JP/2017 & C.O. 33/JP/2017_ 14 Ito Vs Satish Kumar was held to be excessive or unreasonable. Therefore, we direct to delete

the addition.

confirming the rejection of books of account and making and confirming

trading addition of Rs. 3,99,167/- for the year under consideration. The

ld. CIT(A) has confirmed the addition by holding as under:

“8.3 I have gone through the assessment order as well as submissions made by the appellant. I have taken into consideration the reasons given by the A.O to estimate the GP after invoking section 145 of the Act. The A.O has particularly cited the non-reconciliation of TDS/TCS as shown in the ITR and as appearing in form 26AS. Taking an overall factual position into consideration, I find it reasonable to estimate GP of 3.5% as against 3.21% declared by the appellant for the year under consideration. I find it reasonable, when compared with GP of 3.91% in the immediate preceding year and 4.99% in the year prior to immediate preceding year. Accordingly, the addition of Rs. 3,99,167/- is sustained. Appellant’s ground of appeal on this issue is dismissed.”

declared gross profit of Rs. 44,85,616/- on turnover of Rs.13,95,65,227/-

giving g.p. rate of 3.21%. In the immediate preceding year, the turnover

of Rs.5,35,70,378/- and g.p. rate was3.91% and prior to that year, the

turnover was Rs. 2,63,64,738/- and the g.p. rate was 4.99%. It was

pleaded that the assessee was dealing in scrap trading and it became

ITA 637/JP/2017 & C.O. 33/JP/2017_ 15 Ito Vs Satish Kumar more competitive, therefore, the margins were squeezed. Further it was

also claimed that the assessee migrated from this business to

manufacturing of MS ingot and the assessee was not able to give full

attention to this trade, therefore, the profit margins declined. The ld AR of

the assessee has further submitted as under:

“1. The assessee is maintaining day to day books of accounts. The same are subject to tax audit. The sales and purchases of the assessee are duly supported by the bills and vouchers. The AO rejected the books of accounts on the ground that no books of account and bills/vouchers have been produced for verification. This finding of AO is contradictory in as much as at page 1 of his order he has stated that books of accounts along with supporting bills/vouchers, etc. were produced which were examined on test check basis. Another reason given by the lower authorities for rejecting the books of accounts is the non-reconciliation of TDS/TCS as shown in the ITR and as appearing in Form 26AS. It is submitted that from the chart showing difference in TCS as per return and Form 26AS (PB 37), it can be noted that there is difference of only Rs.2,682/-. TCS credit as per return is Rs.11,85,939/- (PB 38-49) and as per Form 26AS is Rs.11,88,621/- (PB 50-61). The assessee has claimed less credit of Rs.2,682/-. Thus, purchases are fully reconcilable. Hence, the observations given by the lower authorities for rejecting the books of accounts and confirming the trading addition is incorrect.

ITA 637/JP/2017 & C.O. 33/JP/2017_ 16 Ito Vs Satish Kumar assessee is mainly interested in volume of the profit earned instead of the rate. This volume can be achieved only by increasing the sales by reducing the margin. In the various cases it has been held that simply because there is decline in the G.P. rate due to substantial increase in the turnover, the trading addition is not justified. He relied on the following case laws:

In view of above, the trading addition confirmed by CIT(A) be directed to be deleted.

authorities below.

material available on the record. From the records, we find that there was

discrepancy in the reconciliation of TDS/TCS as per Income tax Return

and as per Form 26AS. Further there was decline in the gross profit. The

reason provided by the assessee are not convincing, therefore, we are of

the view that the Assessing Officer has rightly rejected the books of

account, which has been sustained by the ld. CIT(A). Accordingly we

sustain the rejection of books of account. Further we are of the view that

ITA 637/JP/2017 & C.O. 33/JP/2017_ 17 Ito Vs Satish Kumar the reasons put forward by the assessee to explain the decline in the G.P.

rate are also not convincing. The Assessing Officer and the ld. CIT(A)

were quite reasonable in making and sustaining the gross profit rate @

3.5% while it was 3.91% in the immediate preceding year and 4.99% in

the year prior to the immediate preceding year. The Hon’ble Rajasthan

High Court has ruled that average of the past years G.P. is good criteria

to estimate the G.P. rate. When the books of account do not reflect the

true affairs of income of the assessee then estimate based in past years

gross profit is justified. In assessee’s case, it was even estimated less in

comparison to immediate preceding year. The estimate @ 3.5% instead

of 3.91% shall take care of fall in g.p. if any on account of increase in

turnover and other factors as pleaded by the ld AR. Therefore, after

considering all the factual aspects and also case laws relied upon, we

sustain the order of the ld. CIT(A). Hence, this ground of assessee’s C.O

stands dismissed.

purpose and the C.O. of the assessee is partly allowed.

Order pronounced in the open court on 22/11/2017. Sd/- Sd/- ¼fot; iky jko½ ¼Hkkxpan½ (VIJAY PAL RAO) (BHAGCHAND) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur

ITA 637/JP/2017 & C.O. 33/JP/2017_ 18 Ito Vs Satish Kumar fnukad@Dated:- 22nd November, 2017 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The ITO, Ward-Bhiwadi. 1. izR;FkhZ@ The Respondent- Shri Satish Kumar, Bhiwadi (Alwar). 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 637/JP/2017 & C.O. 33/JP/2017) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत