DCIT, MEERUT vs. M/S PRASANDI BUILDERS PVT. LTD.,, MEERUT

In ground no. 1 of the appeal of the assessee, the grievance of the assessee is that the CIT(A) erred in confirming the addition of Rs.54,00,000/- u/s 68 of the Income Tax Act.

The Assessing Officer observed that from perusal of balance sheet, it is observed that there is increase in creditors as under: “Rajender Singh 1800000 Raj Pal 2300000 Ramesh Yadav 1300000”

The Assessing Officer further observed that during the year there are no purchases. Notice u/s 133(6) of the Act was issued on 08.12.2014 to all the creditors and the same was also confirmed. From the review of confirmation, it was found that they are not creditors, but the nature of the same is unsecured loan as nothing was purchased from them. As per order sheet entry dated 04.03.2015 was required by the Assessing Officer to give confirmation of creditors alongwith bills for which payment was due. Further, again on 13.03.2015, assessee was asked to produce the three parties before him, the assessee failed to produce the creditors. The assessee submitted that they were unsecured depositor and wrongly mentioned in balance sheet under the head sundry creditors. The Assessing Officer observed that explanation of the assessee was not acceptable as this was not reflected in the Tax Audit Report. The assessee accepted this fact only when assessee was required to furnish bills of goods supplied by them. Therefore, the Assessing Officer concluded from the confirmations, bank statement and purchase/sale deed that all the bank account maintained are in joint name of Sh. Vijay Pal Yadav with Union Bank of India, who is the director in the assessee company. All cheques of loaners for the amount of loan received by the company for Rs.18,00,000/-, Rs.23,00,000/- and Rs.13,00,000/- is only signed by director himself and cheques does not contain any signature of loaners. All loaners gave loan out of sale consideration of property which is sold to the sister concern of the said company where both the directors and shareholders are same and purchase deed is also executed by Sh. Vijay & 3774/Del/2016 3 Prasandi Builders Pvt. Ltd. Pal Yadav in his capacity of Director. On the basis of this information, the AO concluded that above transactions are benami transactions routed by the Director Sh. Vijay Pal Yadav. The AO observed that the assessee has been given opportunity to produce the loaner otherwise same shall be considered as unexplained. The assessee failed to do so. Summon u/s 131 of the Act was not responded to by the parties by appearing before him or by filing any reply. He observed that the onus of the assessee is to prove the identity, creditworthiness and genuineness of transaction of the depositor where assessee completely failed to prove the same. Hence, he added Rs.54,00,000/- to the income of the assessee as unexplained cash credit u/s 68 of the Act.

On appeal before CIT(A), the assessee contended that during the assessment proceedings, the loan creditor was busy, therefore, he could not appear. He furnished affidavit of Sh. Rajinder Singh Yadav as an additional evidence alongwith application under Rule 46A for admission of the same. The CIT(A) observed that in the affidavit, in para 6, Sh. Rajinder Singh informed that now he is ready to present himself for necessary statement etc. The submissions alongwith the additional evidences were forwarded to the AO vide letter dated 10.12.2015 informing the AO that now the appellant is in a position to produce the cash creditor and therefore, the AO is directed to examine the additional evidence and send his report. The Assessing Officer furnished his remand report on 15.01.2016.

In the said report, the Assessing Officer stated for not admitting the additional evidence on the ground that the appellant was given sufficient opportunity during the course of assessment proceedings and also for the reason that the appellant do not satisfy any of the four conditions as mentioned in Rule 46A(1). & 3774/Del/2016 4 Prasandi Builders Pvt. Ltd.

On the merits, the Assessing Officer issued summons u/s 131 of the Act to Sh. Rajinder Singh for compliance on 13.01.2016, however, he did not turn up for the statement. In the light of this fact, the Assessing Officer submitted that claim of the assessee alongwith additional evidences should not admitted.

The CIT(A) observed that on the issue of admission of additional evidence under Rule 46A, he was of the considered view that under the facts and circumstances and in the interest of justice, the additional evidence being affidavit needs to be admitted, more so, also because the AO has examined the additional evidence on merits and has offered his comments on merits also. The appellant has also filed reply to remand report vide his letter dated 17.02.2016. It has been stated that Sh. Rajinder Singh was down with cancer and still under treatment, therefore, could not attend. The appellant furnished the confirmation of Sh. Rajinder Singh, copy of his PAN card, copy of ITR acknowledgment of assessment year 2012-13 showing gross income of Rs.5,18,780/-, computation of income of assessment year 2012-13 and bank statement of Sh. Rajinder Singh. The appellant has claimed that the source of this loan by the creditor is out of the sale proceeds of properties. Copies of sale deeds were also filed. However, on examining the bank statement of Sh. Rajinder Singh and Sh. Vijay Pal Yadav, the CIT(A) found that the immediate preceding credit of Rs.20,00,000/- on 24.03.2012 is through some clearing vide instrument no. 345031. It is out of this credit that Rs.18,00,000/- has given to the assessee. The sale proceeds of the property credited in the bank account was already utilized/consumed prior to the receipt of Rs.20,00,000/- on 24.03.2012. Hence, the claim that the source of Rs.18,00,000/- was out of the sale proceeds of property by Sh. Rajinder Singh did not appear to be correct. The CIT(A) further observed that neither the appellant nor Sh. Rajinder Singh explained the source of & 3774/Del/2016 5 Prasandi Builders Pvt. Ltd. credit of Rs.20,00,000/- in the bank account on 24.03.2012. He observed that it was important to mention that neither during the course of assessment proceedings, the assessee produced Sh. Rajinder Singh for the statement, nor during the course of remand proceedings, he was produced although in the affidavit, Sh. Rajinder Singh duly offered for producing for the needful before the AO. Hence, although the identity of the loan creditor was not in doubt, however, the creditworthiness does not stand proved and under the facts, the appellant has failed to discharge his onus fully in respect of cash credit. Therefore, he held that he was of the view that the Assessing Officer was justified in making addition of Rs.18,00,000/- u/s 68 of the Act.

The CIT(A) observed that in the case of Sh. Ramesh Yadav, loan of Rs.13,00,000/- all the facts and circumstances are similar as in the case of Sh. Rajinder Singh discussed above. In this case also, additional evidence being affidavit was filed wherein he offered for appearing for the needful for the appeal proceedings. The additional evidence stands admitted for the reason given in the case of Sh. Rajinder Singh above. However, in this case, Sh. Ramesh Yadav was not produced during remand proceedings inspite of being so directed by the AO. In this case also, the appellant has furnished confirmation, copy of PAN card, copy of ITR acknowledgment declaring gross income of Rs.4,50,933/-, computation of income for assessment year 2012-13 and also copy of bank statement in the name of Sh. Ramesh Yadav and Sh. Vijay Pal Yadav. He observed that in this case also, claim has been that the source of Rs.13,00,000/- is the sale proceeds of properties by Sh. Ramesh Yadav. Copies of sale deed has been filed. Similar to the case of Sh. Rajinder Singh, in this case also, the immediate preceding credit of Rs.15,00,000/- in the bank statement on 24.03.2012 through clearing is vide instrument no. 345026. The source of Rs.15,00,000/- is not explained either by the appellant or by Sh. Ramesh & 3774/Del/2016 6 Prasandi Builders Pvt. Ltd. Yadav. The CIT(A) observed that it was important to point out that the sale proceeds of properties which were credited in the same bank earlier already stood consumed/exhausted prior to receipt of immediate preceding credit of Rs.15,00,000/- on 24.03.2012. Therefore, the claim that the source in the bank account of Sh. Ramesh Yadav is out of sale proceeds of properties remains unsubstantiated. Under these facts, although the identity of the loan creditor is not in doubt, however, creditworthiness stands unproved. The appellant has not successfully discharged his full onus in respect of this credit and therefore, he held that the AO were justified in making addition of Rs.13,00,000/- u/s 68 of the Act for unsecured loan in the name of Sh. Ramesh Yadav.

The CIT(A) observed that in the case of Raj Pal, the loan amount of Rs.23,00,000/- all the facts and circumstances are similar in the above two cases. The additional evidence being affidavit stands admitted for the reason already given above. The only difference in this case is that during remand proceedings, Raj Pal attended before the AO on 13.01.2016 when his statement was recorded. The CIT(A) observed that he has also perused the said statement wherein he admitted for giving Rs.23,00,000/- as loan without interest for the reason that he has family relations with the directors of the appellant. The source he has stated to be out of sale proceeds of properties. In this case also, the appellant filed confirmation, copy of Pan card, ITR acknowledgment showing gross income at Rs.2,91,920/- for assessment year 2012-13 and copy of bank statement of Sh. Raj Pal Singh and Sh. Vijay Pal Yadav and also copy of sale deeds of properties. The CIT(A) observed that as in the above mentioned two cases, in this case also, the immediate preceding credit of Rs.25,00,000/- in the bank account on 24.03.2012 out of which, the said loan has been given is a credit through clearing instrument no. 345025. The source of this credit remains unexplained. The sale proceeds of the properties are in & 3774/Del/2016 7 Prasandi Builders Pvt. Ltd. the same bank account but those credits were already consumed/utilized prior to receipt of Rs.25,00,000/- on 24.03.2015 and it is out of this credit that the amount under consideration of Rs.23,00,000/- has been given. Thus, although the cash creditor appeared before the AO, his identity is not in dispute but his version and claim that the loan has been given out of sale of properties remains unsubstantiated. Therefore, he held that the appellant has failed in proving creditworthiness in this case also and had not discharged his onus fully. Therefore, there was of the considered opinion that the AO was justified in making addition of Rs.23,00,000/- u/s 68 of the Act in this case also. In this way, he confirmed the addition of Rs.54,00,000/-.

Before us, the AR of the assessee has filed copy of ledger account of Sh. Rajinder Singh in the books of EMM VEE Infrastructures (India) Pvt. Ltd. at page no. 173 of the paper book. It was pointed out there from that the assessee has given sum of Rs.21,00,000/- to the said company on 06.01.2012 and he has also filed copy of bank account of Union Bank of India, Meerut in the name of Sh. Rajinder Singh and Sh. Vijay Pal Yadav. There from it has been pointed out that there is deposit of Rs.21,00,000/- on 06.01.2012 in the name of EMM VEE Infrastructures (India) Pvt. Ltd. Thereafter, the AR of the assessee pointed out that on 22.03.2012 EMM VEE Infrastructures (India) Pvt. Ltd. returned Rs.20,00,000/- vide DD No. 345031 dated 22.03.2012 to the assessee. He pointed out from the bank statement of Union Bank of India of Sh. Rajinder Singh and Sh. Vijay Pal Yadav that there was a credit of Rs.20,00,000/- on 24.03.2012 and on 26.03.2012 Sh. Rajinder Singh vide RTGS from the same bank account with Union Bank of India in the name of Sh. Rajinder Singh and Sh. Vijay Pal Yadav advance a loan of Rs.18,00,000/- to the assessee. & 3774/Del/2016 8 Prasandi Builders Pvt. Ltd.

Similarly, in the case of Mr. Raj Pal Singh, the assessee has filed copy of ledger account in the books of EMM VEE Infrastructures (India) Pvt. Ltd. which is placed at page no. 190 of the paper book and pointed out there from that assessee has advanced Rs.21,00,000/- to the said M/s EMM VEE Infrastructures (India) Pvt. Ltd. on 06.01.2012 vide cheque no. 650813 dated 06.01.2012 drawn on UBI Main Branch, Meerut. He has also placed copy of bank statement of Sh. Raj Pal Singh and Sh. Vijay Pal Yadav at page no. 180 of the paper book wherein on 06.01.2012 there is debit of Rs.21,00,000/- vide cheque no. 650813 in the name of M/s EMM VEE Infrastructures (India) Pvt. Ltd. He then pointed out from the ledger copy of Sh. Raj Pal Singh in the books of M/s EMM VEE Infrastructures (India) Pvt. Ltd. that on 22.03.2012, the said company paid Rs.25,00,000/- to Mr. Raj Pal Singh by DD No.345025 dated 22.03.2012. On 26.03.2012, Mr. Raj Pal Singh paid Rs.23,00,000/- to the assessee company through RTGS being cheque no. 650816. Similarly, the assessee has filed copy of ledger account of Sh. Ramesh Chander in the books of M/s EMM VEE Infrastructures (India) Pvt. Ltd. which is placed at page no. 182 of the paper book. He pointed out there from that Sh. Ramesh Chander has paid Rs.21,00,000/- to the said company vide cheque no. 599427 dated 06.01.2012 drawn on UBI Main Branch, Meerut. On 22.03.2012 M/s EMM VEE Infrastructures (India) Pvt. Ltd. paid Rs.15,00,000/- to Sh. Ramesh Chander vide DD NO. 345026 dated 22.03.2012. Then, Sh. Ramesh Chander on 26.03.2012 paid Rs.13,00,000/- to the assessee by cheque drawn on UBI Main Branch, Meerut. Thus, it was submitted that the source of credit in the bank account of the loan creditor was amply proved by these documents filed before the AO as well as CIT(A) and hence, there was no justification for making addition of Rs.54,00,000/- in the hands of the assessee as unexplained cash credit. & 3774/Del/2016 9 Prasandi Builders Pvt. Ltd. 13. On the other hand, the DR relied on the orders of the lower authorities.

We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case, the Assessing Officer observed that the assessee has taken loan of Rs.18,00,000/- from Sh. Rajider Singh, Rs.23,00,000/- from Sh. Raj Pal and Rs.13,00,000/- from Sh. Ramesh Yadav. The above three loan aggregates to Rs.54,00,000/-. The above three loan creditors were not produced before the AO. The AO added Rs.54,00,000/- to the income of the assessee by invoking the provisions of Section 68 of the Act.

The assessee before the CIT(A) filed copy of acknowledgment of Income Tax Return for assessment year 2012-13 filed by the three loan creditors, copy of bank statement of the loan creditors, copy of deed of sale of land by the loan creditors, copy of their confirmations, copy of confirmation of M/s EMM VEE Infrastructures (India) Pvt. Ltd. with the loan creditors and copy of affidavit of the loan creditors wherein they accepted the giving of loan to the assessee.

The CIT(A) after admitting the above documents as additional evidences called for remand report from the AO. After considering the remand report and submissions of the assessee, the CIT(A) confirmed the action of the AO in respect of all the three loan creditors.

The AR of the assessee submitted at bar that all the three loan creditors in questions are brothers of Director of the assessee company, namely, Sh. Vijay Pal Yadav. All of them are assessed to tax and have been allotted PAN by the department. Thus, their identities are not in dispute. & 3774/Del/2016 10 Prasandi Builders Pvt. Ltd.

Further, the loans in question were advanced through banking channel and were also confirmed by the said creditors by way of their affidavits. Thus, the genuineness of the transactions are also not in dispute.

The lower authorities made the addition only because they doubted the creditworthiness of the said loan creditors. All the three creditors had three piece of land jointly owned by them which were sold vide registered deed dated 24.12.2011 for Rs.35,98,500/-, deed dated 24.12.2011 for Rs.40,81,500 and registered deed dated 24.12.2011 for Rs.35,05,500/- and the respective share of sale consideration was credited in the bank account maintained with Union Bank of India of each of the loan creditors on 03.01.2012. Out of this, Sh. Rajinder Singh gave advance of Rs.33,00,000/- to M/s EMM VEE Infrastructures (India) Pvt. Ltd. He received back Rs.20,00,000/- out of the aforesaid advance from M/s EMM VEE Infrastructures (India) Pvt. Ltd. on 22.03.2012 and out of this refund he paid Rs.18,00,000/- to the assessee company as loan. Similarly, Sh. Raj Pal gave advance of Rs.28,00,000/- to M/s EMM VEE Infrastructures (India) Pvt. Ltd. He received back Rs.25,00,000/- from M/s EMM VEE Infrastructures (India) Pvt. Ltd. on 22.03.2012 and out of this refund he gave loan of Rs.23,00,000/- to the assessee company. Similarly, Sh. Ramesh Yadav gave advance of Rs.28,00,000/- to M/s EMM VEE Infrastructures (India) Pvt. Ltd. He received back Rs.15,00,000/- from M/s EMM VEE Infrastructures (India) Pvt. Ltd. and out of this refund he paid Rs.13,00,000/- to the assessee company as loan.

We find that it is not in dispute that all the three loan creditors had sold three piece of land jointly held by them for Rs.35,98,500/-, Rs.40,81,500 and Rs.35,05,500/- vide registered deed all dated 24.12.2011 before advancing loan to the assessee company. Further, from & 3774/Del/2016 11 Prasandi Builders Pvt. Ltd. the confirmation of account of Sh. Rajinder Singh, Sh. Raj Pal and Sh. Ramesh Yadav in the books of M/s EMM VEE Infrastructures (India) Pvt. Ltd. It is observed that opening balance of advance given by Sh. Rajinder Singh was Rs.65,00,000/-, Sh. Raj Pal was Rs.71,00,000/- and Sh. Ramesh Yadav was Rs.50,00,000/-. Thus, in our considered opinion, creditworthiness of such a loan creditor cannot be doubted. In fact, in the instance case, actual creditworthiness of three loan creditors, namely, Sh. Rajinder Singh, Sh. Raj Pal and Sh. Ramesh Yadav was not impeached by the revenue by bringing on record any relevant material but addition was made by doubting the source of Rs.18,00,000/- in the case of Sh. Rajinder Singh, Rs.23,00,000/- in the case of Sh. Raj Pal and Rs.13,00,000/- in the case of Sh. Ramesh Yadav. It is observed that no material has been brought on record to show that Rs.18,00,000/-, Rs.23,00,000/- and Rs.13,00,000/- has flown from the exchequer of the assessee and was routed back by way of loan from Sh. Rajinder Singh, Sh. Raj Pal and Sh. Ramesh Yadav. It is an established position of law that u/s 68 of the Act in respect of loan creditor, the assessee is required to establish his source and not the source of the source. Therefore, the addition made of Rs.18,00,000/- received from Sh. Rajnder Singh, Rs.23,00,000/- received from Sh. Raj Pal and Rs.13,00,000/- received from Sh. Ramesh Yadav by doubting their source cannot be sustained. We, therefore, set aside the orders of the lower authorities and delete the addition of Rs.18,00,000/-, Rs.23,00,000/- and Rs.13,00,000/- all aggregating to Rs.54,00,000/- and allow the ground of appeal of the assessee.

21. In ground no. 2 of the appeal of the assessee and in ground no. 1 of the appeal of the revenue, the grievance of the assessee is that the CIT(A) erred in confirming the addition of Rs.9,34,394/- on account of closing stock and the grievance of the revenue is that the CIT(A) was not justified & 3774/Del/2016 12 Prasandi Builders Pvt. Ltd. in reducing the addition made by the AO on account of closing stock from Rs.66,00,000/- to Rs.9,34,394/-.

Since, the facts and issues involved are similar, the ground of appeal of the assessee and that of the revenue are adjudicated together as under.

In this way, he made addition for Rs.9,34,394/- being the difference between Rs.66,00,000/- and Rs.50,29,590/-.

Both the parties before us could not point out any error in the order of the CIT(A), therefore, the grounds of appeal of the assessee as well as revenue are dismissed.

The brief facts of the case are that the assessee claimed Rs.46,54,068/- as cost incurred on development of land at Rajpura which was sold during the year. According to the Assessing Officer from the sale and purchase documents it is not coming out that any cost of development was incurred on the said land and that the claim was not supported by bills and vouchers. Therefore, he added Rs.46,54,068/- to the income of the assessee. & 3774/Del/2016 14 Prasandi Builders Pvt. Ltd.

On appeal, before the CIT(A), the assessee submitted that the development cost of Rs.46,54,068/- was incurred prior to the assessment year 2012-13 and therefore, no addition can be made in the year under appeal.

The CIT(A) observed that he has examined the issue from the trading and profit and loss account of the current year as well as the preceding year submitted by the assessee that these expenses are attributable to the assessment year 2011-12 towards cost of plots at Rajpura and thereby the cost of such plots as on 01.04.2011 was shown to Rs.77,85,600/- including development cost of Rs.46,54,068/- incurred in assessment year 2011-12. Therefore, he held that this expenses was not incurred in assessment year 2011-12 and was already included in the opening cost of Rajpura plots. He also observed that for assessment year 2011-12, the assessment has been completed u/s 143(3) of the Act wherein no adverse view was taken for such land development cost and therefore, there was no reason for any addition or disallowance of Rs.46,54,068/- in respect of such land development cost which has been incurred in the assessment year 2011-12. Accordingly, he deleted the addition of Rs.46,54,068/- and allowed the ground of appeal of the assessee.

In the result, the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed. (Order Pronounced in the Court on 28/01/2019).