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Income Tax Appellate Tribunal, DELHI BENCH : E : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI R.K. PANDA
ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 20th March, 2017 of the CIT(A), Muzaffarnagar, relating to the A.Y. 2010-11.
In ground No.1, the assessee has challenged the order of the CIT(A) in sustaining the addition of Rs.2,67,190/- on account of notional interest on interest free advances given.
Facts of the case, in brief, are that the assessee is an individual and derives income from trading of medicines in wholesale under the name and style of the proprietorship concern M/s Manish Kumar & Co. He filed his return of income on 20th September, 2010, declaring the total income at Rs.4,34,502/-. The AO, during the course of assessment proceedings, noted that the assessee has given advances of Rs.49,50,000/- to ten different persons and no interest has been received from the above persons. However, the assessee has paid bank interest. The AO, therefore, applying the interest rate of 15% per annum against such interest free advances, made an addition of Rs.7,42,500/- to the total income of the assessee being deemed interest on such advances. Similarly, the assessee had shown advance of Rs.59,95,000/- to M/s R.S. Distributors, Ghaziabad free of interest. The AO, therefore, made addition of Rs.4,81,250/- being deemed interest @ 15% on such interest free advances.
In appeal, the ld.CIT(A) noted that the assessee has debited interest of Rs.2,67,190/- in the P&L Account. Since the assessee did not submit any reconciliation to show that the advances are made out of non-interest bearing funds and since the assessee could not furnish the complete details in support of the grounds taken before him, the ld.CIT(A) restricted such addition to only Rs.2,67,190/- being the interest debited by the assessee in the P&L Account and deleted the balance addition.
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO, in the instant case, made an addition of Rs.7,42,500/- and Rs.4,81,250/- being the interest free advances given by the assessee to various persons which has been restricted by the CIT(A) to Rs.2,67,190/- being the interest debited in the P&L Account. It is the submission of the ld. Counsel that he has filed the confirmation letter of M/s R.S. Distributors, copy of which is placed at page 26 of the paper book. It is also his submission that in the preceding as well as in the subsequent years, there is no addition on account of such notional interest. It is his submission that the assessee has a capital balance of Rs.49,75,303/- and unsecured interest free loan of Rs.13,32,648/- and, therefore, no disallowance is called for. It is also his submission that when the assessee has trade dealings with persons to whom advances were made and looking to the business expediency, disallowance of interest is not permissible. We find force in the above argument of the ld. Counsel for the assessee. However, as mentioned by the Ld. CIT(A), the assessee has not submitted any reconciliation to show that the advances have been made out of non-interest bearing funds. The assessee also could not substantiate before us the trade dealings with the persons to whom such interest free advances are given.
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 AO with a direction to give one more opportunity to the assessee to substantiate his case. The first issue raised by the assessee in the grounds of appeal is accordingly allowed for statistical purposes.
7. The assessee in his second ground has challenged the order of the CIT(A) in confirming the addition of Rs.28,43,920/- made by the AO on account of unexplained creditors.
Facts of the case, in brief, are that the AO, during the course of assessment proceedings, asked the assessee to prove the identity, credit worthiness and genuineness of transaction with the following creditors:- M/s Neelam Enterprise 3,00,000/- M/s Kuber Sale Agencies 1,30,000/- M/s Shakti Medical Agencies 4,01,263/- M/s Sharma Medicine Centre 2,35,070/- M/s Veer Medical Co. 10,73,380/- M/s Ruby Hotel & Banuet 7,04,207/- Total 28,43,920/- 9. Since the assessee failed to prove the identity and credit worthiness of the above parties with any sort of authentic evidence, the AO held the same to be undisclosed money of the assessee and, accordingly, made the addition of the same to the total income.
In appeal, the ld.CIT(A) sustained the addition by observing as under:-
“7. The facts of the case as well as submission made by the appellant have been gone through. The AO has noted in the assessment order that the appellant has given advances to various persons for Rs.49,50,000/- and has not charged any interest. The AO has made addition of Rs.742500/- on account of deemed interest on such advances made. Similarly, the appellant has shown advance of Rs.59,95,000/- to M/s R.S. Distributors, Ghaziabad free interest. The AO has made addition of Rs.481250/- by charging deemed interest @ 15%. The AR during the appellate proceedings has stated that he has not received any interest from such advances. On consideration of facts of the case, it is noted that the appellant has debited interest of Rs.267190/- in the profit & loss account. The AR has not submitted any reconciliation to show that advances as above have been made out of non-interest bearing funds. In the circumstances the appellant has not furnished complete details in support of ground of appeal taken. However, the maximum addition on this account can be made to the extent of interest debited to the profit & loss account. Under the facts it is therefore held that the AO was justified to make such addition to the extent of Rs.267190/- and the same is hereby confirmed and balance addition is deleted.” “On the perusal of the details furnished by the AR it is noted that such details have been furnished only in respect of M/s Kuber sales Agency, M/s Shakti Medical Agency, M/s Sharma Medicine Centre and M/s Veer Medical Co. On going through the copy of accounts it is noted that credit purchases have been made from them continuously throughout the year and cheques have been shown to have issued to them at the end of the year. However, such cheques have not been encashed and amounts have remained unpaid. The AR has not furnished any further details to show when and how the payments to the sundry creditors have been made in subsequent years. It is very strange to note that the purchases from these creditors have been made on credit basis throughout the year without making any payment. No confirmations have been furnished from such sundry creditors. The appellant could not furnish any satisfactory details to show the genuineness of such purchases. Under the circumstances, such sundry creditors have remained unexplained and therefore the AO was justified to make addition of Rs.28,43,920/-. The same is hereby confirmed. Ground of appeal No.3 is dismissed.”
11. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
12. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. It is the submission of the ld. Counsel for the assessee that out of six trade creditors as mentioned by the AO, M/s Neelam Enterprise and M/s Ruby Hotel & Banuet are debtors and not creditors. It is also his submission that all the details were given before the CIT(A) and it was submitted that purchases have been made from the parties continuously throughout the year for which cheques were issued to them at the end of the year. However, we find the ld.CIT(A) sustained the addition on the ground that the cheques were not encahsed during the year and the amounts were unpaid and the assessee did not furnish any further details to show when and how the payments to the sundry creditors have been made in subsequent years.
13. 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 AO with a direction to give one final opportunity to the assessee to substantiate regarding the subsequent clearance of the cheques and give an opportunity to the assessee to file confirmations from the said sundry creditors. The Ground No.2 raised by the assessee is accordingly allowed for statistical purposes.
14. In Ground No.3, the assessee has challenged the order of the CIT(A) in confirming the addition of Rs.2,34,350/- on account of low household expenses, loans from friends and opening cash.
Facts of the case, in brief, are that the AO, during the course of hearing, observed from the cash flow statement filed by the assessee that the assessee has shown opening cash of Rs.95,125/- and closing cash balance of Rs.22,682/-. Since the assessee could not prove the availability of cash of Rs.95,125/- on 01.04.2009 by giving any sort of evidence and to explain as to why so much cash was kept by him instead of in the bank account, the AO rejected the same and accepted only Rs.15,125/- as opening cash balance and treated the balance Rs.80,000/- as the assessee’s undisclosed funds taxable as “Income from other sources.” Similarly, the AO made addition of Rs.55,000/- being loan obtained from friends and relations in absence of any details furnished before him. He further noted that the assessee has shown family expenses to the extent of Rs.1,40,650/- during the year. Considering the cost of living and the school going child for which school fee of Rs.40,790/- has been paid, the AO estimated the family expenses at Rs.2,40,000/- and added the difference of Rs.99,350/- as “income from undisclosed sources.” Thus, in effect, the AO made an addition of Rs.2,34,350/-.
15.1 In appeal, the ld.CIT(A) dismissed the ground raised before him by observing as under:-
“11. The facts of the case as well as submission made by the appellant have been gone through. The appellant has shown house hold withdrawals of Rs. 140650/-. The appellant has shown school fee of Rs.40,790/- out of the same. The AO has estimated the same @ Rs.20,000/- per month. Further, the appellant has shown receipt of cash from friends of Rs.55,000/- on 04-01- 2010/05-01-2010 and Rs.95125/- on account of opening cash in hand as on 01-04-2009. The appellant could not furnish any satisfactory details in support of the same. Therefore, the AO has made addition on these accounts for Rs.2,34,350/-. During the appellate proceedings the submission of the AR is very vague without any supporting details. In the circumstances there is no material to support the availability of cash in hand of Rs.95125/- as on 01-04- 2009 and further receipt of cash of Rs.55,000/- from friends during the year. It is noted that the appellant has shown very low withdrawals and the AO has been reasonable to estimate the same for Rs.2,40,000/-. Under the facts it is held that the AO was justified to make addition of Rs.2,34,350/-on these accounts. The same is hereby confirmed. Ground of appeal No.4 is dismissed.”
16. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel submitted that he has filed cash summary of the transactions during the year copy of which is placed at page 124 of the paper book. According to him, there is no restriction in keeping cash in hand and, therefore, addition of Rs.80,000/- is not justified. Similarly, the estimation of family expenses at Rs.2,40,000/- per annum according to him is also not justified. Referring to the decision of the Ahmedabad Bench of the Tribunal in the case of DCIT vs. Smt. Parvathiben P. Sukhadia, /2010, order dated 25th May, 2012, he submitted that mere estimation of household expenses without pointing out any specific expenditure being incurred by the assessee cannot be the basis for addition. Relying on various other decisions, placed in the paper book, he submitted that the addition has been made by the AO merely on the basis of 8 surmises and conjectures and, therefore, the same should be deleted. So far as the amount of Rs.55,000/- obtained from friends and relations is concerned, he submitted that full details were given, but, the Revenue authorities have not considered the same in the proper perspective. He accordingly submitted that the addition made by the AO and sustained by the CIT(A) should be deleted.
The ld. DR, on the other hand, heavily relied on the orders of the AO and the CIT(A).
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO made three additions, i.e., Rs.80,000/- on account of unexplained opening cash, Rs.55,000/- being loan from friends and relations and Rs.99,350/- on account of low household expenses. So far as low household expenses is concerned, the assessee has shown family expenses of Rs.1,40,650/- which includes school fee of Rs.30,340/-. Since the AO has not brought anything on record to substantiate any major expenses incurred by the assessee such as on any family function or huge medical expenditure or any expenditure of substantial nature, therefore, merely estimating the expenses at Rs.2,40,000/- per annum without any evidence the addition of Rs.99,350/- made by the AO is not justified. The same is directed to be deleted. So far as the opening cash balance of Rs.95,125/- is concerned, it is the case of the AO that the assessee has not explained the reasons for not keeping the 9 money in bank account and why such huge cash amount was lying with him. When the assessee is having a turnover of more than Rs.3 crores during the year and the assessee has filed the cash flow statement of the whole year and the assessee is a person of means, therefore, merely because the assessee has not deposited the cash in bank account cannot be a ground for disbelieving the opening cash of Rs.99,125/- which, in the peculiar facts and circumstances of the case, appears to be reasonable. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to delete the addition of Rs.80,000/-. So far as the amount of Rs.50,000/- received by the assessee from his friends and relations in cash is concerned, no justification or no details whatsoever was filed either before the AO or before the CIT(A) or even before us. Therefore, in absence of any details of such cash loan received from his friends and relations and considering the fact that the assessee was showing a huge amount of opening cash balance, there was no justification for receiving cash from friends and relations, the addition of Rs.55,000/- made by the AO and sustained by the CIT(A) is justified. Accordingly, ground No.3 raised by the assessee is partly allowed.
The ld. Counsel for the assessee did not press ground No.4 due to smallness for which the ld. DR has no objection. Accordingly, this ground is dismissed.
Ground of appeal No.5 relates to the addition of Rs.22,800/- made by the AO and sustained by the CIT(A) on account of transportation expenses of Rs.9,600/- and HRA of Rs.13,200/- respectively. 10
22. After hearing both the sides, we find in absence of any supporting details regarding the transportation expenses and house rent allowance, the AO made the additions. Since no details were furnished before the CIT(A) he also sustained the addition. It is the submission of the ld. Counsel that these are part of the salary statement and the lower authorities have not gone through the same. 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 AO with a direction to give one final opportunity to the assessee to substantiate the same. Ground No.5 raised by the assessee is accordingly allowed for statistical purposes.
The ground of appeal
No.6 raised by the assessee reads as under:- “6. That the receipts as well as deduction under the head ‘Property income’ were substantiated by documentary evidence warranting no interference. The addition of Rs.44,945/- (Rs.1,31,862 minus Rs.86,917/-) sustained by the ld.CIT(A) deserves to be deleted being void, illegal and untenable on facts and in law.”
24. After hearing both the sides, we find it is the submission of the ld. Counsel that the statutory deduction of Rs.30,000/- u/s 24 of the IT Act was not granted by the AO or the CIT(A). We, therefore, deem it proper to restore the issue to the file of the AO with a direction to verify the details and allow the statutory deduction allowable to the assessee from his income from house property as per law.
25. Grounds No.7 and 8 were not pressed by the assessee due to the smallness of amount for which the ld. DR has no objection. Accordingly these grounds are dismissed as not pressed.
26. Ground No.9 relates to levy of interest u/s 234B and 234C which are mandatory and consequential in nature. Accordingly this ground is dismissed.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 22.05.2020.