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Income Tax Appellate Tribunal, “SMC-B” BANGALORE BENCH
Before: SHRI N.V VASUDEVAN, VICE-
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC-B” BANGALORE BENCH BEFORE SHRI N.V VASUDEVAN, VICE-PRESIDENT ITA No.1727/Bang/2019 Assessment Year : 2016-17
Shri. Soora Jagannath Abhilash, Vs. Assistant Commissioner of Income-tax, Bhavani Rice Industries, Circle – 1, NH No.4, Sira Road, Rangapura, Tumkuru. Tumkuru – 572 106. PAN : AHAPA 0731 F Appellant Respondent
Assessee by : Shri. V. Narendra Sharma, Advocate Revenue by : Shri. Ganesh R. Ghale, Jr. Standing Counsel Date of hearing : 25.01.2021 Date of Pronouncement : 27.01.2021 O R D E R PER SHRI N.V VASUDEVAN, VICE-PRESIDENT : This is an appeal of the assessee against the order dated 05.07.2019 of CIT(A)-7, Bengaluru, relating to Assessment Year 2016-17.
The only issue that arises for consideration in this appeal is as to whether the Revenue authorities were justified in adding a sum of Rs.20 lakhs which was a loan availed by the assessee from M/s. Annapurneshwari Rice Industries as unexplained cash credit under section 68 of the Income Tax Act, 1961 (hereinafter called ‘the Act’).
The assessee is an individual. He carries on the business of manufacturing and trading under the name and style M/s. Bhavani Rice Industries. In the course of assessment proceedings under section 143(3) of the Act, the AO noticed that the
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Page 2 of 5 assessee has shown in his books of accounts a sum of Rs.20 lakhs as an unsecured loan taken from M/s. Annapurneshwari Rice Industries. The AO issued a notice under section 133(6) of the Act dated 04.09.2018 to M/s. Annapurneshwari Rice Industries calling upon them to furnish their bank statements showing the transactions of unsecured loan. M/s. Annapurneshwari Rice Industries is a partnership firm and one Mr. Nagaraj is a partner of this firm. In reply to the notice under section 133(6) of the Act, M/s. Annapurneshwari Rice Industries vide letter dated 09.09.2018 confirmed having given the loan to the assessee. They also furnished bank statement showing the mode of payment. The AO on perusal of the bank statement noticed that just prior to the transaction of loan by M/s. Annapurneshwari Rice Industries to the assessee (i.e., on 05.02.2016) there was a cash deposit of Rs.20 lakhs of M/s. Annapurneshwari Rice Industries. The AO obtained a copy of the challan by which the cash deposit of Rs.20 lakhs was made in the bank account of M/s. Annapurneshwari Rice Industries and he found that the assessee had deposited cash of Rs.20 lakhs into the bank account of M/s. Annapurneshwari Rice Industries. In these circumstances, the AO was of the view that the money which was obtained as loan from M/s. Annapurneshwari Rice Industries was nothing but assessee’s own money which was routed as a loan through M/s. Annapurneshwari Rice Industries.
When the assessee was confronted with the above facts, the assessee vide letter dated 18.12.2018 submitted as follows:
"1 was in need of funds to the tune of Rs 20,00,000 to discharge business obligations. So 1 approached Sri Nagaraj, partner of M/s Annapoomeshwari Rice Industries on the night of 04.02.2016 to lend a sum of Rs 20,00,000 to me. Mr. Nagaraj readily. accepted to lend Rs 20,00,000 to me .However he told me that he will not be available on next day due his family obligations and told me that he will send cash through his employee to the bank for depositing.the same into. firms account. He immediately issued an account payee crossed cheque in firms name.
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Page 3 of 5 Next morning i.e 05.02.2016 his person came to the bank to deposit the money into the bank account. He is not educated and could not fill the challan properly. I helped him in filling challan and deposited the cash into firms account. I present the cheque for transfer and the proceeds were credited to my Firms account. Just because of helping in completing the transaction cannot be inferred as my own money is deposited to lenders account. Additions cannot be made on assumption, presumptions, conjectures and surmises alone. I am paying interest continuously to Annapoorneshwari Rice Industries from FY 2016-17 to FY 2017-18. Applicable TDS is also properly deducted and remitted to the exchequer and TDS returns were filed on due dates. I have filed proper confirm and action letter to this effect. M/s Annapoorneshwari Rice Industries have also assessed to Income tax and offered this interest to tax and shown in their balance sheet as receivables. Copies of ledger extract for FY 2016-17 and FY 201-7-18 along with Form 16A of M/s Annapoorneshwari Rice Industries are enclosed herewith for your perusal."
The AO, however, took the view that M/s. Annapurneshwari Rice Industries did not have sufficient capacity to lend a sum of Rs.20 lakhs and in this regard, has tabulated the income declared by M/s. Annapurneshwari Rice Industries from Assessment Years 2010-11 to 2016-17. The income declared was a sum of Rs.1,99,000/- only. The AO therefore held that the sum of Rs.20 lakhs was unexplained cash credit and added the same to the income of the assessee under section 68 of the Act. On appeal by the assessee, the CIT(A) confirmed the order of the AO.
Aggrieved by the order of CIT(A), the assessee has preferred the present appeal.
We have heard the submissions of the learned AR. He submitted that the assessee has established identity and capacity and genuineness of the transactions and in the circumstances the addition made could not be sustained. His principle submission was that without examining Mr. Nagaraj, Partner of M/s. Annapurneshwari Rice Industries, no inferences, whatsoever, can be drawn.
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Page 4 of 5 Learned DR relied on the order of the CIT(A) and the decision of the Hon’ble Supreme Court in the case of Principal CIT Vs. NRA Iron & Steel Pvt.Ltd., SLP (Civil) No.29855 of 2018) dated dated 5.3.2019.
I have given a careful consideration to the rival submissions and I am of the view that without examining Mr. Nagaraj, it is not possible to conclude that the sum which was added as unexplained cash credit in the hands of the assessee is unexplained cash credit. If on examination of Mr. Nagraj, admits having given Rs.20 lakhs then the addition in question cannot be sustained. In such an event the assessee should be considered to have explained the source of the credit. In the set aside assessment it will not be permissible to examine the source of Mr. Nagaraj as that would amount to examining source of source. With these observations, we set aside the order of the CIT(A) and allow the appeal of the assesse for statistical purposes. The AO will afford opportunity of being heard in the set aside proceedings.
In the result, appeal by the assessee is treated as allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (B. R. BASKARAN) (N.V VASUDEVAN) ACCOUNTANT MEMBER Vice President Bangalore, Dated : 27.1.2021 /NS/*
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Page 5 of 5 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar ITAT, Bangalore.