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Facts
The assessee, Mr. Ashish Arora, challenged additions made by the Assessing Officer (AO) and confirmed by the CIT(A) for AY 2010-11. The appeal concerned an addition of Rs. 2,97,55,367/- for sundry creditors treated as cash credit under section 68, disallowance of Rs. 23,16,479/- interest under section 36(1)(iii), and disallowance of Rs. 2,61,768/- expenses related to M/s Parvati Textile, a proprietary concern, where the AO observed no business was carried out and expenses were bogus. The assessee had initially 'voluntarily surrendered' the sundry creditor amount during assessment proceedings.
Held
The Income Tax Appellate Tribunal (ITAT) dismissed all grounds of the assessee's appeal. The Tribunal affirmed the addition under section 68, noting the assessee's inability to produce creditors and past voluntary surrender. It also upheld the disallowance of interest under section 36(1)(iii) and other expenses, concurring with the lower authorities that the proprietary concern lacked established business operations and the assessee failed to rebut factual findings.
Key Issues
1. Whether sundry creditors could be treated as unexplained cash credit under section 68 when the assessee failed to prove their genuineness. 2. Whether disallowance of interest under section 36(1)(iii) and business expenses was justified when the proprietary concern's business activity was not established.
Sections Cited
68, 36(1)(iii), 143(3), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH
Before: SHRI LALIET KUMAR & SHRI KRINWANT SAHAY
Order Per Krinwant Sahay, AM : Appeal in this case has been filed by the assessee against the order dated 19.02.2014 passed by the Ld. Commissioner of Income Tax (Appeals)-1. Ludhiana [herein referred to as CIT(A)]. The captioned appeal was dismissed for non-prosecution vide order dated 26.7.2016 but later on the Assessee filed a Misc. Application which
1. 1152-Chd-2014 Ashish Arora, Ludhiana 2 was allowed vide order dated 8.11.2023 and, therefore, this appeal was re-fixed for hearing.
The Assessee has taken following grounds of appeal:
1. That the Learned Commissioner of Income tax (Appeal-1) Ludhiana has erred in confirming the addition of Rs. 2,97,55,367/- on account of sundry creditors outstanding in respect of three parties on the basis of observation made by the Assessing Officer being cash credit u/s 68 of the Income tax Act 1961 while completing the assessment under section 143(3) of the Income tax Act 1961
2. That the Learned Commissioner of Income tax (Appeal-1) Ludhiana has erred in confirming the addition of Rs. 23,16,479/- on account of disallowance of interests under section 36(1)(iii) of the Income tax Act 1961 on the basis of observation made by the Assessing Officer while completing the assessment under section 143(3) of the Income tax Act 1961
3. That the Learned Commissioner of Income tax (Appeal-1) Ludhiana has erred in confirming the addition of Rs. 2, 61,768/- on account of expenses claimed in the profit and loss account in the case of M/s Parvati Textile a Prop concern of the assessee on the basis of observation made by the Assessing Officer that no business was carried out and the 1152-Chd-2014 Ashish Arora, Ludhiana 3 expenses are bogus while completing he assessment under section 143(3) of the Income tax Act 1961.
4. That the order of the Learned Commissioner of Income tax (Appeal-1) Ludhiana is bad in law and facts of the case as nobody attend the appeal on behalf of the appellant due to some domestic crises in the family.
That the appellant craves to add or amend any grounds of appeal before the appeal is finally heard and disposed off.
The first ground of appeal pertains to the confirmation of addition of Rs. 2,97,55,367/- on account of sundry creditors in respect of outstanding three parties on the basis of observation made by the Assessing Officer being cash credit u/s 68 of the Income Tax Act, 1961 (in short 'the Act').
4. The Ld. CIT(A) has given his very detailed finding on this issue in his appellate order which is as under: -
“3. The ground of appeal at Sr. No. 2 pertains to disallowance of Rs.2,97,55,367/- which has been made by the Assessing Officer on account of treatment of sundry creditors as bogus u/s 68.
1152-Chd-2014 Ashish Arora, Ludhiana 4
The perusal of the assessment order reveals that the Assessing Officer has brought on record the facts that the proprietor concern of the appellant namely M/s Parvati Textiles was showing a negative capital balance of Rs. 625.39 Lakhs which was balance of Rs. 209.14 Lac as on 01.04.2009. Further withdrawals of Rs. 524.85 Lac were made during the year under consideration. The Assessing Officer further observed that in the impugned concern i.e. M/s Parvati Textiles there were purchases of Rs. 391.45 Lac and sales of Rs. 407.43 Lacs and there were no sundry debtor at all. It was also seen that no payment had been made to any supplier and all creditors were outstanding at the end of the year. The assessee on being asked to provide the names and addresses alongwith confirmed copies of account of such creditors could not file the confirmation and the enquiries conducted u/s 133(6) revealed that none of the parties existed at the given addresses. The result of enquiries were confronted to the assessee and was asked to explain the same. The assessee submitted before the Assessing Officer on 22/3/2013 after taking number of adjournments as under: -
1152-Chd-2014 Ashish Arora, Ludhiana 5
"As asked for your honour vide letter No. DCIT/C-III/Ldh/12-13 dated 01.03.2013 to produce the following parties before your honour to determine the authenticity of their credits etc. It is humbly submitted that we have tried our level best to search for the person and completing the assessment proceedings. The time is very short due to some official holidays also, and in view of the same we voluntarily surrendered a sum of Rs.2,97,55,367/- Two Crores Ninety-Seven Lacs Fifty Thousand Three Hundred Sixty Seven Only) to invite peace of mind and no confrontation with the department and the details of which are stated below:- Name of the Creditor Amount outstanding
M/s Jai Shree Bala Ji Traders Rs. 98,76,290/- 2. M/s Rama Knitwears Rs. 88,11,502/- 3. M/s Zora Cloth House Rs. 1,10,67,575/- Rs. 2,97,55,367/- Total The aforesaid parties whose credit balances is surrendered for tax purposes will be search by us continuously and we are in a position to search them we will take this point in appeal but at this moment because of the shortage of time we could not search the said creditors to produce before your honour and in view of the same the aforesaid amount is voluntarily surrendered subject to no penalty, interest and prosecution etc. under the Income Tax Act, 1961. Further we request you to kindly accept our aforesaid surrendered subject to no penalty
1152-Chd-2014 Ashish Arora, Ludhiana 6 interest or prosecution etc. under the Income Tax Act, 1961 and this is a voluntary surrendered only."
The Assessing Officer after considering the reply of the assessee came to the following conclusion: - "The assessee has shown sales and purchases of fabric. The parties from who, it has been claimed to be purchased do not exist. The sales have been shown in cash. No payment has been shown to be made to the parties from whom, purchases have been shown. The cash generated through sales has been withdrawn from the capital account and taken to the other two concerns. The real fact is that neither the assessee had made any purchase nor sale. The assessee was in need of cash in the books of account in the other two concerns. He adopted this route for the same. He generated cash in form of cash sales in books of M/s Parvati Textile. Since, the assessee has failed to adduce evidence of the transactions claimed by him, the credits in the name of above parties in the books of the assessee are bogus and the cash shown to have been received against the corresponding sales is the unexplained cash introduced in the 1152-Chd-2014 Ashish Arora, Ludhiana 7
books. The same, in the absence of any explanation, is unexplained cash credit u/s 68 of the Income Tax Act, 1961 and is liable to be deemed to the income of the assessee. Accordingly the amount of Rs. 2,97,55,367/- is added to the Income of the assessee u/s 68 of the Income Tax Act, 1961." 5. The appellant during the course of appellate proceeding has chosen not to further any arguments in support of the impugned ground of appeal
. The addition made by the Assessing Officer, as highlighted above is based upon the investigation done and after considering the reply of the assessee on the same. Therefore, the addition made is on sound factual investigation and clear admission by Assessee, therefore confirmed.”
5. Per contra, the ld. DR relied on the order of the CIT(A).
6. From the above findings of the Ld. CIT(A) on this issue, it is clear that the Assessee himself had surrendered Rs. 2,97,55,367/- during the course of assessment proceedings before the Assessing Officer on the ground that no creditors were produced before the 1152-Chd-2014 Ashish Arora, Ludhiana 8 Assessing Officer. However, the Assessee submitted before the Assessing Officer that later on, when such creditors would be found out, this surrender could be returned back but the Assessee did never produce such creditors before the AO. During the appellate proceedings also, the Assessee choose to remain silent on this issue. Even during the proceedings before us, nothing as such has been brought on record to claim that such creditors are either traceable or verifiable. Therefore, the findings given by the Ld. CIT(A) seems to be logical and correct. Thus, we find no reason to interfere on the findings given by the Ld. CIT(A) on this issue. Accordingly, Assessee’s appeal on this issue is dismissed.
7. Appeal on ground No. 2 is against the confirmation of addition of Rs. 23,16,479/- on account of disallowance of interest u/s 36(1)(iii) of the Act.
8. On this issue also the Ld. CIT(A) has given a very categorical finding which is as under: -
“6. The ground of appeal at serial no.3 pertains to an addition of Rs.23,16,479/-
1152-Chd-2014 Ashish Arora, Ludhiana 9 which has been made by the Assessing Officer on the ground that since no business had been carried out the claim of expenses could not be allowed. The disallowance is logical as the fact of non-existence of business operation during the year under consideration has been established by the Assessing Officer. Therefore, the disallowance of expenses is a logical conclusion thereof. The disallowance is therefore confirmed.
Per contra, the ld. DR relied on the order of the CIT(A).
During the proceedings before us, the ld. Counsel for the Assessee could not rebut the findings given by the Ld. CIT(A) on this issue also. Therefore, we find no reason to make any interfere in the findings on this issue. Thus, Assessee’s appeal on this issue is dismissed.
The third ground of appeal is against the confirmation of addition of Rs. 2,61,768/- on account of expenses claimed in the profit and loss account in the case of M/s Parvati Textile, a Prop concern of the Assessee on the basis of observation made by the Assessing Officer
1152-Chd-2014 Ashish Arora, Ludhiana 10 that no such business was carried out and the expenses are bogus. On this issue also, the Ld. CIT(A) has given a finding in the appellate order which is as under: -
“7. The ground of appeal at serial no.4 pertains to an addition of Rs.2,61,768/- which has been made by the Assessing Officer on the ground that the assessee had given loans and advances out of borrowed funds and no interest on the same had been charged. The Assessing Officer required the assessee to file the purposes and number of such advances but no such details were furnished. The Assessing Officer further brought on record the fact that the assessee has borrowed fund on interest from bank which was as under:- "The Assessing Officer further observed that the interest paid on unsecured loans in the books of M/s Shiva Ji Traders and M/s Shanti Knit Fab is Rs. 29,81,070/- and Rs. 2,87,584/- respectively, the total of which comes to Rs. 32,68,654/-. On the other hand the interest received in the books of these two concerns is Rs. 6,97,391/- and Rs. 2,54,874/- respectively, total of Rs. 9,52,175/-. Therefore, the difference of Rs. 23,16,479/- is disallowed and added back to the income of the assessee u/s 36(1)(iii)."
1152-Chd-2014 Ashish Arora, Ludhiana 11
The facts brought on record on this issue by the Assessing Officer and the Ld. CIT(A) could not be rebutted by the Counsel of the Assessee during the proceedings before us.
Per contra, the ld. DR relied on the order of the CIT(A).
We have considered the findings given by the Assessing Officer and the ld. CIT(A) on this issue and we find that the findings given by the lower authorities are very clear and categorical, therefore, there is no reason to interfere on this issue. Accordingly, Assessee’s appeal on this issue is also dismissed.
Before parting, it is pertinent to mention that during the proceedings before us, the ld. Counsel for the Assessee filed a number of case laws to justify the claims of the Assessee but there was hardly anything produced by the Counsel on merit, therefore, we are of this considered view that this case is mainly based on facts because all the additions made by the Assessing Officer are on factual
1152-Chd-2014 Ashish Arora, Ludhiana 12 basis. Since nothing has been brought on record by the Counsel of the Assessee on facts, therefore, the appeal of the Assessee stands dismissed.
In the result, appeal of the Assessee is dismissed.
Order pronounced on 01.09.2025.