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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI M. BALAGANESH
Date of Hearing – 16.09.2019 Date of Order – 06.12.2019
O R D E R PER SAKTIJIT DEY. J.M.
The aforesaid appeals filed by the assessee are against two separate orders passed by the learned Commissioner of Income Tax (Appeals)–32/37, Mumbai, for the assessment year 2003–04.
2 Situ Shastri A.Y. 2003–04
While one of these appeals arise out of quantum proceedings, the other one is against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act"). ./2014 Quantum Appeal
The dispute in the present appeal is confined to the addition of ` 34,98,000, as unexplained cash credit under section 68 of the Act.
Before we proceed to decide the merits of the issue raised in the appeal, it is necessary to observe, there is a delay of 81 days in filing the present appeal. The assessee has filed an application seeking condonation of delay accompanied by an Affidavit. After perusing the contents of the Affidavit as well as the application for condonation of delay and considering the submissions of the learned Authorised Representative, we are satisfied that the delay in filing the present appeal is due to reasonable cause. Accordingly, we admit the appeal for adjudication on merit.
Brief facts are, the assessee is an individual. For the assessment year under dispute, he filed his return of income on 1st December 2003, declaring total income of ` 8,55,073. During the assessment proceedings, the Assessing Officer noticing that in the year under consideration, the assessee has shown unsecured loan of ` 46,53,000,
3 Situ Shastri A.Y. 2003–04 from various parties called upon to furnish loan confirmations. As observed by the Assessing Officer, the assessee was unable to, rather, expressed his inability to furnish any confirmation from the parties. Accordingly, the Assessing Officer treated the amount of ` 46,53,000, as unexplained cash credit under section 68 of the Act and added back to the income of the assessee. The assessee challenged the aforesaid addition before the first appellate authority.
Before learned Commissioner (Appeals), the assessee furnished confirmation from 22 parties in respect of loan amount aggregating to ` 39,38,000. In respect of balance unsecured loan of ` 7.15 lakh, the assessee was unable to furnish any confirmation even before the first appellate authority. After admitting the additional evidences furnished by the assessee by way of confirmation from the creditors, learned Commissioner (Appeals) sent them for examination of the Assessing Officer and directed him to furnish a report. The Assessing Officer after receiving the confirmations wanted to verify the genuineness of loan taken. Hence, he issued notices under section 133(6) to the concerned creditors. As observed by the Assessing Officer in the remand report, in response to the notices issued under section 133(6) of the Act to 22 parties, 11 parties responded to such notices and furnish their reply confirming the loan advanced to the assessee. Thus, the Assessing Officer accepted such loan amount aggregating to ` 11,55,000, to be 4 Situ Shastri A.Y. 2003–04 genuine. However, in respect of the other 11 parties, who either did not reply to the notice issued under section 133(6) of the Act or such notices could not be served on them due to their unavailability in the given address, the Assessing Officer observed that such loan amount aggregating to ` 27.83 lakh cannot be held to be genuine. After perusing the remand report and the submissions of the assessee, learned Commissioner (Appeals) sustained the addition of ` 34.98 lakh, thereby, deleting the balance amount of ` 11.50 lakh out of the addition made by the Assessing Officer. Being aggrieved, the assessee is in appeal before us.
The learned Authorised Representative submitted, the assessee has been able to establish the identity of the creditors as in respect of most of the 22 creditors notice issued under section 133(6) of the Act, except four parties, were served, though, in some cases reply was not received. The learned Authorised Representative submitted, in the present appeal, the assessee is only contesting the addition of ` 27.83 lakh representing the loan taken from 11 creditors which learned Commissioner (Appeals) has confirmed. He submitted, in respect of the balance loan amount of ` 7.15 lakh, the assessee even at this stage is not in a position to furnish any confirmation. Thus, he submitted, assessee does not want to contest the addition of ` 7.15 lakh. As regards the addition of ` 27.83 lakh representing loan
5 Situ Shastri A.Y. 2003–04 advanced by 11 parties, the learned Authorised Representative submitted, except four of the parties, in rest of the cases notices issued under section 133(6) of the Act were served, but no reply was received. He submitted, before learned Commissioner (Appeals) as well as during the remand proceedings, the assessee has furnished the loan confirmations with PAN. He submitted, some of the creditors are closely related to the assessee. He submitted, Shastri Agencies from whom the assessee has obtained loan of ` 1 lakh, is the HUF of the assessee. Therefore, there cannot be any doubt with regard to identity of the party or genuineness of the loan transaction. He submitted, Smt. Theresa Shastri, from whom the assessee has obtained loan of ` 30,000, is the wife of the assessee and the amount was given out of her personal income. He submitted, Shri Vinay Padave, who had advanced ` 1,98,500, is working as DGM (Finance) with the assessee and has advanced the aforesaid amounts on various dates when the assessee was in need of money. He submitted, in respect of loan of Rs.20,000 advanced by Smt. Kanchan Devi Kothari, a reply filed by the Chartered Accountant of the lender was not considered by the Assessing Officer. He submitted, the same is the fact with the loan of ` 10,000 from Smt. Veena Bengani. He submitted, Shri R. Raghunath, who had advanced loan of ` 4,500, is the brother of the assessee and his confirmation along with PAN was also furnished. He submitted, in 6 Situ Shastri A.Y. 2003–04 respect of other creditors confirmations along with PAN were submitted before the Revenue authorities. The learned Authorised Representative submitted, failure on the part of the persons to respond to the summons or the notices issued under section 133(6) of the Act may be for various reasons. However, that cannot be the sole criteria for treating the unsecured loans as unexplained cash credit. The learned Authorised Representative submitted, when the assessee has furnished the confirmation of the creditors along with PAN, there should not be any doubt with regard to the genuineness of the loan transaction.
The learned Departmental Representative relying upon the observations of the Assessing Officer in the remand report as well as the observations of the learned Commissioner (Appeals) submitted, during the assessment proceedings, the assessee did not file even a single confirmation from the creditors. He submitted, only before learned Commissioner (Appeals), the assessee filed confirmations from 22 creditors which were sent for verification of the Assessing Officer. He submitted, in response to the summons/notices issued under section 133(6) of the Act, some of the creditors confirmed of having given loan to the assessee. On the basis of such confirmation, the Assessing Officer accepted such loan amount to be genuine. However, the Assessing Officer treated those unsecured loan to be non–genuine
7 Situ Shastri A.Y. 2003–04 where the notices issued under section 133(6) of the Act, though, served were not responded to or could not be served. Thus, he submitted, due to non compliance to the summons/notices issued by the Assessing Officer, neither the genuineness of the loan transaction could be verified nor their creditworthiness could be ascertained. Therefore, the addition to that extent was rightly sustained by the first appellate authority.
We have considered rival submissions and perused the material on record. Facts on record reveal that in the course of assessment proceedings, though, the Assessing Officer had called upon the assessee to prove the genuineness of unsecured loan shown at ` 46,53,000, by furnishing confirmations of creditor and other supporting evidence, however, the assessee was not able to furnish confirmation from even a single creditor or any other supporting evidence to prove the loan transactions. Therefore, the Assessing Officer treated the entire unsecured loan of ` 46.53 lakh as unexplained cash credit and added back to the income of the assessee. In the course of proceeding before the first appellate authority, the assessee furnished confirmation from 22 creditors which were sent for verification and enquiry of the Assessing Officer in remand. On perusal of confirmations filed by the assessee, the Assessing Officer wanted to verify/ascertain the genuineness of loan transactions and 8 Situ Shastri A.Y. 2003–04 creditworthiness of the creditors. Therefore, he issued summons/notices under section 133(6) of the Act to the concerned creditors. As observed by the Assessing Officer in the remand report, out of the 22 creditors representing aggregate loan amount of ` 34.98 lakh only 11 lenders responded to the notices issued by the Assessing Officer and confirmed of having advanced loan to the assessee. Therefore, the Assessing Officer accepted such loan transaction to be genuine and accordingly, learned Commissioner (Appeals) deleted the amount of ` 11.55 lakh from the addition made of ` 46.53 lakh. Out of the balance amount of ` 34.98 lakh, the assessee has not been able to furnish confirmation in respect of unsecured loan aggregating to ` 7.15 lakh either before the Departmental Authorities or even before us. In fact, the learned Authorised Representative has fairly submitted before us that the assessee is not in a position to contest the aforesaid addition of ` 7.15 lakh with any supporting evidence. Therefore, the addition of ` 7.15 lakh needs no interference. As regards the balance addition of ` 27.83 lakh, representing the loan availed from 11 parties, it is noticed from the remand report that in case of four creditors, notices issued under section 133(6) of the Act could not be served either due to their unavailability in the given address or due to incorrect address. In respect of other parties, though, notices issued under section 133(6) of the Act were served, however, no reply was 9 Situ Shastri A.Y. 2003–04 received from them confirming the loan transaction. It is the case of the assessee that since he has already furnished the confirmations of the creditors along with PAN, loan availed from them cannot be treated as non–genuine. In our view, mere filing of confirmations will not establish either the genuineness of the loan transaction or the creditworthiness of the parties. Therefore, the Assessing Officer has to verify factually whether the creditors/lenders have creditworthiness to advance loan. It is a fact on record that the enquiry conducted by the Assessing Officer to verify the genuineness of loan transaction and the creditworthiness of the creditors become fruitless as the summons/notices issued to the concerned creditors were either not responded to or could not be served. The assessee was also unable to produce the concerned parties before the Departmental Authorities at any stage to prove the genuineness of the loan transaction or the creditworthiness of the lenders. In such circumstances, merely on the basis of the confirmations filed by the assessee, the unsecured loans cannot be accepted. However, from the facts on record it appears that some of the creditors/lenders such as Shastri Agencies, Smt. Theresa Shastri, Shri R. Raghunath, are related parties. Further, in respect of Smt. Kanchan Devi Kothari, and Smt. Beena Bengani, it is the submissions of the learned Authorised Representative that, though, their Chartered Accountants have furnished reply in response to the 10 Situ Shastri A.Y. 2003–04 query raised by the Assessing Officer, however, they were not considered during the assessment proceedings. Insofar as the related parties are concerned, Shastri Agencies is stated to be the HUF of the assessee. Whereas, Smt. Theresa Shastri, is the wife of the assessee. Similarly, Shri R. Raghunath, is stated to be the brother of the assessee. Therefore, considering their relation and proximity with the assessee and the quantum of loan involved, we are of the view that loan availed from these parties should not be treated as unexplained cash credit. As regards loan availed from Smt. Kanchan devi Kothari and Smt. Beena Bengani, considering the submissions of the learned Authorised Representative that the reply filed by their Chartered Accountants have not been considered, we hold that these loan transactions should not be considered as unexplained cash credit. However, as regards the other creditors, the assessee has not been able to furnish any credible evidence, except, the confirmations. Thus, the assessee has failed to establish the genuineness of the loan transaction and creditworthiness of the creditors by producing the concerned parties or any other supporting evidence. Therefore, following loan transactions, in our view, cannot be accepted as genuine, hence, the addition to that extent is required to be sustained:–
11 Situ Shastri A.Y. 2003–04
P.B. Rao ` 10,00,000 Troy Gomes ` 10,00,000 ` 1,98,500 Binay Padave Unicon Products and Packaging ` 2,00,000 Gunjan Bengani ` 1,20,000 Abhijit Joshi ` 1,00,000
As regards the disallowance of interest paid on the aforesaid loan amount, it is upheld to the extent it relates to the loan amount added back under section 68 of the Act. Grounds are partly allowed.
In the result, appeal is partly allowed.
ITA no.3146/Mum./2015
This appeal by the assessee is against imposition of penalty under section 271(1)(c) of the Act.
As discussed in the earlier part of the order, alleging lack of any supporting evidence including confirmation filed by the assessee, the Assessing Officer added back the unsecured loan of ` 46,53,000, as unexplained cash credit under section 68 of the Act along with the interest paid thereon amounting to ` 28,18,785. While contesting the aforesaid addition before the first appellate authority, the assessee gained partial relief as learned Commissioner (Appeals) deleted the addition to the extent of ` 11,55,000. On the basis of addition made
12 Situ Shastri A.Y. 2003–04 on account of unexplained cash credit, the Assessing Officer had initiated proceedings for imposition of penalty under section 271(1)(c) of the Act and ultimately passed an order on 28th December 2007, imposing penalty of ` 22,42,436. The assessee challenged the penalty imposed under section 271(1)(c) of the Act before the first appellate authority.
Learned Commissioner (Appeals) while disposing off assessee’s appeal modified the quantum of penalty imposed by the Assessing Officer by directing him to compute penalty on the addition sustained by him in the appeal order.
The learned Authorised Representative submitted, in course of assessment proceedings the assessee has furnished all necessary information regarding the unsecured loans availed during the year. He submitted, confirmations from 22 lenders were also furnished before the first appellate authority and some of the lenders also personally communicated with the Assessing Officer confirming the loan advanced by them. He submitted, the other creditors/lenders in respect of whom the assessee had furnished confirmations did not reply to the notices issued under section 133(6) of the Act according to their own choice. However, that will not lead to conclusion that the assessee had either furnished inaccurate particulars of income or concealed his income so 13 Situ Shastri A.Y. 2003–04 as to impose penalty under section 271(1)(c) of the Act. Thus, he submitted, the penalty imposed should be deleted.
The learned Departmental Representative, relying upon the observations of the learned Commissioner (Appeals), submitted that the additions on account of unexplained cash credit was made as the assessee failed to prove the genuineness of loan transactions. Therefore, to this extent, the assessee had furnished inaccurate particulars of income justifying imposition of penalty under section 271(1)(c) of the Act.
We have considered rival submissions and perused material on record. It is evident, out of the unsecured loan availed of ` 46,53,000, the assessee in course of proceedings before the first appellate authority had furnished confirmations in respect of loan amount aggregating to ` 39,38,000. In fact, during the remand proceedings, the Assessing Officer made enquiry with the concerned creditors to verify the genuineness of loan transaction. In course of such enquiry, 11 creditors representing loan amount of ` 11,55,000, furnished their reply confirming the loan advanced by them. However, the balance 11 creditors did not reply through the notices issued by the Assessing Officer, though, their confirmations were filed by the assessee. In fact, while deciding assessee’s quantum appeal on the issue of unsecured
14 Situ Shastri A.Y. 2003–04 loan, we have granted further relief to the assessee by deleting the amount of ` 1,64,500. Thus, from the aforesaid facts it becomes clear that only in respect of loan amount of ` 7,15,000, the assessee has not been able to furnish any information including confirmation at any stage right up to the Tribunal. However, in respect of the balance amount, the assessee did furnish confirmations from the lenders, though, a part of such loan amount has been sustained as the concerned lenders did not furnish their reply to the notices issued under section 133(6) of the Act by the Assessing Officer. The non– cooperation of the lenders in the enquiry conducted may be for various reasons. While confirming the addition in the quantum proceedings, one has to look at whether the ingredients of section 68 of the Act are established or not. Once the Appellate Authority on the basis of facts on record concludes that either the identity of the creditor or the genuineness of the loan transaction or the creditworthiness of the creditors are not established, addition can be made under section 68 of the Act. The aforesaid finding has to be on the basis of facts/evidences brought on record during assessment proceeding. However, imposition of penalty under section 271(1)(c) of the Act is an independent proceeding wherein assessee’s explanation qua the charge brought against him has to be evaluated afresh in the context of materials on record. In the facts of the present case, the assessee
15 Situ Shastri A.Y. 2003–04 did furnish necessary information with some supporting evidence in respect of loan received from 22 creditors aggregating to ` 39,38,000. Therefore, in our considered opinion, the assessee cannot be accused of furnishing inaccurate particulars of income or concealing income to that extent. Therefore, imposition of penalty on the addition of ` 39,38,000 and the corresponding interest thereon deserves to be deleted. Accordingly, we do so.
As regards loan amount of ` 7,15,000, and interest paid thereon, admittedly, the assessee has failed to furnish any evidence in respect of such loan transaction. Therefore, the assessee has furnished inaccurate particulars of income to this extent. Thus, we sustain the penalty imposed under section 271(1)(c) of the Act on the amount of ` 7,15,000, and interest paid thereon. Grounds are partly allowed.
In the result, appeal stands partly allowed.
To sum up, both the appeals are partly allowed. Order pronounced in the open Court on 06.12.2019