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Income Tax Appellate Tribunal, Delhi Bench“SMC”, New Delhi
Before: SHRI N.K. SAINI
This is an appeal by the assessee against the order dated 21.09.2017 of the CIT(A), Meerut.
The only grievance of the assessee in this appeal relates to the confirmation of addition of Rs. 8,00,000/- made by the AO. The facts of the case in brief are that the assessee filed the return of income on 30.9.2014 declaring an income of Rs. 4,97,450/-. Later on the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee has introduced a sum of Rs. 8,00,000/- in his capital account. He asked the assessee to furnish the details of capital introduced and its source. In response, the assessee submitted that the capital was introduced by taking unsecured loan from M/s Bharat Bhushan & Sons HUF of which the assessee is a Karta. He also furnished copy of bank statement of Union Bank of India relating to M/s Bharat Bhushan & Sons HUF showing entries of unsecured loan given to the assessee through cheque or by transfer. The AO observed that before the entry of giving loan to the assessee there was cash deposits of equal amount in the bank account of HUF. He, therefore, asked the assessee to explain the source of cash deposit in the bank account of the HUF for the AY 2014-15 alongwith copy of its trading and profit & loss accounts, capital accounts and balance sheets for the AY 2013-14 and 2014-15. In response the assessee furnished the copy of acknowledgement of ITR filed by the HUF for the AY 2014-15 alongwith copies of its trading and profit loss accounts, capital accounts and balance sheets for the AY 2013-14 and 2014-15. The AO, thereafter issued the summon under section 131 of the Income Tax Act, 1961 on 18.11.2016 to Shri Bharat Bhushan Gupta, Karta of the HUF, to produce the books of accounts or other documents in support of unsecured loans of Rs. 8,00,000/- given by the HUF to the assessee. However, on the given date Shri Bharat Bhushan, Karta of HUF did not appear. The AO, therefore, was of the view that the source of capital was not explained to his satisfaction and books of accounts were also not produced. The AO observed that although identity of the loaner was established with PAN, ITR and bank statement but the genuineness of transaction and capacity of the loaner was not proved. He made the addition of Rs. 8,00,000/- under section 68 of the Act.
Being aggrieved, the assessee carried the matter to the learned CIT(A), who observed at page no. 4 of the impugned order as under:- In response to queries regarding source of Rs. 800000/- introduced as capital in the capital account it has been explained by you that the capita! was introduced by taking loans of Rs. 800000/- from M/s. Bharat Bhushan & Sons HUF. However, a perusal of the copy of account and bank statement of M/s. Bharat Bhushan & Sons HUF reveals that the loan of Rs. 800000/- was received by you during a long period from 18-09- 2013 to 25-02-2014 in small installments as under:
Rs.25000x10=Rs.250000/- Rs. 30000x9= Rs. 270000/- Rs. 40000x7= Rs. 280000/- Total=Rs.800000/- It is strange to note that an amount of Rs. 8 lakh has been received over a period of almost 5 months and just before giving loans through cheques by the HUF, there is cash deposit of equal amount in bank account of HUF either on same or the previous day. You have furnished copy of acknowledgment of ITR of HUF and also a copy of trading and profit and loss account of HUF for the A.Y. 2014-15 showing sales of Rs. 775050/- and net profit of Rs. 199750/-. Similarly, the net profit for the A.Y. 2013-14 has been shown at Rs. 198950/- but the bank statement, does not reflect any entries of transaction regarding purchase and sales by HUF. There was only Rs. 1100/- opening balance in the bank account and closing balance was Rs. 1222/- only. Thus, though the identity of the loaner is established with PAN, ITR and Bank statement, but the genuineness of transaction and capacity of the loaner has not been proved. Further, in absence of any specific details, genuineness of business of HUF is also not beyond doubt to a great extent. Summon was also issued to Shri Bharat Bhushan Gupta, Karta of the above HUF to ascertain and examine the source of cash deposited in the bank account of HUF and the genuineness of business carried out by it, but he has not completed with the summon on the medical ground as per the letter dated 23-11-2016 submitted by Shri J.P. Arora, Advocate. In view of the above, you are required to show cause as to why the transaction of loans should not be treated as not genuine and why an addition of Rs. 800000/- should not be made to your total income treating the same as introduced out of your own undisclosed income in the guise of unsecured loans. Vide order sheet entry dated 25-10-2016 and 23-11-2016, you are required to produce the books of accounts along with the bills and vouchers for examination but the same have not produced till date through mentioned in your letter dated 23-11-2016. Therefore, you are required to produce the books of accounts along with the original bills and vouchers. In case you fail to produce the books of accounts and bills and vouchers, you are required to show cause as to why the books of accounts should not be rejected and why the net profit should not be estimated @ 5% of total sales against actual net profit @ 0.78% declared by declared by you.”
The learned CIT(A) was not satisfied from the explanation of the assessee and sustained the addition made by the AO by observing that the AO examined the bank account of the loan creditor and did not find any satisfactory explanation with regard to the capacity of the loan creditor to extend credit of Rs. 8,00,000/- and the assessee miserably failed to furnish any cogent evidence regarding the capacity of the loan creditor.
Now the assessee is in appeal.
The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO accepted the identity of the lender HUF in page No. 3 of the assessment order and creditworthiness was proved from the ITR’s, Balance-sheets and profit and loss accounts for the assessment years 2011-12 to 2014-15 copies of which are placed at page no. 10 to 17 of the assessee’s paper book and the balance-sheet as on 31.3.2013 is placed at page no. 13 of the assessee’s paper book, which revealed that he HUF had the capital of Rs. 9,57,950/- in the form of cash, debtors and closing stock which proved that the HUF was creditworthy to grant a loan of Rs. 8 lac. As regards to the genuineness of the transaction, it was submitted that the assessee had furnished the bank statement of the lender HUF and the duly notarized affidavit of the Karta which proved the genuineness. It was stated that the assessee discharged the onus cast upon him to prove the identity as well as creditworthiness of the creditor and genuineness of the transaction, therefore, the addition made by the AO and sustained by the learned CIT(A) was not justified. It was also stated that the cash was deposited in the bank account of the lender before the grant of loan to the appellant, by recovering the amount due from sundry debtors and cash in hand etc. as were appearing in statement of affairs of the lender as on 31.03.2013.
The reliance was placed on the following case laws:- i. CIT vs. Jai Kumar Bakliwal [366 ITR 217] (Raj.) ii. CIT vs. Kamaljeet Singh [147 Taxmann 0018] (All) iii. Sushma Gupta vs. ITO [43 CCH 0103] (Del ITAT) iv. CIT vs. Mark Hospital (P) Ltd. 373 ITR 115 (Mad.) v. DCIT vs. Ramdeo Kumar Chitlangia (2004) 23 CCH 0014 (Jodh. Trib)
7. In his rival submissions, the learned DR strongly supported the orders of the authorities below and further submitted that the capacity to grant the loan was not proved, therefore, the learned CIT(A) rightly confirmed the addition made by the AO.
I have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the identity of lender was accepted by the AO who himself stated at para 3 of the assessment order that the assessee is a karta of M/s Bharat Bhushan & Sons (HUF). He also mentioned at page no. 3 of the assessment order that the identity of the loaner established with PAN, ITR and bank statement. Therefore, the identity was not in doubt. As regards to the creditworthiness of the creditors was concerned, the assessee furnished the copies of the ITR, balance-sheets and profit & loss account of the lender for the assessment year 2011-12 to 2014-2015, copies of which are placed at page no. 10 to 17 of the assessee’s paper book. It is also not in dispute that the lender was trading in cloth and was having cash in hand of Rs. 3,63,200/- as on 31.3.2013 closing stock of Rs. 4,50,250/- and trade debtors of Rs. 1,74,500/- which is evident from the balance-sheet of the assessee as on 31.3.2013 (copy of which is placed at page no. 15 of the assessee’s paper book), so it cannot be said that the lender was not having the source to make the deposit in the bank account before issuing the cheque to the assessee. Moreover, the lender is also assessed to tax and no action was taken by the AO in the case of the lender who has shown the entry of giving the loan to the assessee, therefore, the creditworthiness was also proved. As regards to the genuineness of the transaction is concerned, the karta of the lender HUF furnished an affidavit confirming that the loan was given to the assessee (copy of the said affidavit is placed at page no. 18 to 19 of the assessee’s paper book), the transaction was through banking channel, therefore, the genuineness of the transaction was also proved. In the present case, when the assessee proved the identity of the lender it’s creditworthiness and genuineness of the transaction, there was no reason to make the addition of the loan of Rs. 8,00,000/- given to the assessee, I therefore, by considering the totality of the facts as narrated hereinabove, delete the impugned addition of Rs. 8,00,000/- made by the AO and sustained by the learned CIT(A). 9. In the result, appeal of the assessee is allowed. (Pronounced in the open court on 20.8.2018.)