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Facts
The assessee, engaged in printing and publishing, also had share market transactions from which she declared no income, despite incurring a loss of Rs. 16.88 lakhs. Her case was selected for limited scrutiny to verify the disclosure of investment and income from share transactions. During assessment, the AO made an addition of Rs. 44 lakhs as unexplained loans used for share investments, which was confirmed by the CIT(A).
Held
The Tribunal dismissed Ground 1, holding that the AO acted within the scope of limited scrutiny in examining the source and genuineness of loans used for share investments, as the primary reason for scrutiny was undisclosed share transaction income/investments. For Ground 2, regarding the Rs. 44 lakhs addition under Section 68, the Tribunal noted that the assessee provided some evidence (affidavits, PAN/Aadhaar, bank withdrawal explanations) which the AO failed to verify. Therefore, the issue was set aside to the AO for fresh verification with a reasonable opportunity to the assessee.
Key Issues
1. Whether the Assessing Officer exceeded the scope of limited scrutiny by inquiring into the source of investments/loans without converting the assessment to a complete scrutiny. 2. Whether the addition under Section 68 of the Income Tax Act for unexplained cash credits was valid when the amounts were not found credited in the assessee's own books of account.
Sections Cited
Section 68 of the Income Tax Act, 1961, Section 142(1) of the Income Tax Act, 1961, Section 143(2) of the Income Tax Act, 1961, Section 43(5) of the Income Tax Act, 1961, Section 28 of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI MANISH AGARWAL
O R D E R आदेश आदेश Per Bench : This is an appeal filed by the assessee against the order dated 07.03.2024, passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No.ITBA/NFAC/S/250/2023- 24/1062168195(1) for the assessment year 2016-2017, on the following grounds :-
1. Hon'ble CIT(Appeals), NFAC has erred in law and on facts in confirming the action of the learned AO even though the learned AO has exceeded his jurisdiction in a limited scrutiny case selected under CASS only to examine whether the investment and income relating to securities transactions are duly disclosed or not and added a sum of Rs.44,00,000.00 u/s 68 of the Income Tax Act, 1961, without obtaining prior administrative approval of the concerned Pr. CIT/CIT as prescribed in Circular F. No. 225/402/2018/ITA.II, Dated 28- 11-2018, and Instruction No.5/2016 [F.NO.225/269/2015- ITA.11], Dated 14-7-2016.
2. Hon'ble CIT(Appeals), NFAC has erred in law and on facts in confirming the addition of Rs.44,00,000.00 u/s 68 of the Income Tax Act, 1961. 2
3. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
Brief facts of the case are that the assesee is an individual and is engaged in the business of printing and publishing besides having transactions in shares through stock market. The return of income for the year under appeal was filed declaring income of Rs.5,61,830/- which constitutes the income from business of printing and no income was declared on account of transactions carried out in shares. The case was taken up for limited scrutiny for the reason that during the year under appeal the assesee has entered into the share transactions where the STT was paid on the transactions made without actual delivery under “STT Code 3” and no income is declared in the return of income filed.
The reason for limited scrutiny was to verify as to whether the investments and income from share transactions business is disclosed or not.
Thereafter the assessment was completed wherein the addition of Rs.44 lakhs was made towards the loans taken for making investments in the share business held as unexplained. The assesee has also claimed that it had incurred loss from share transaction business of Rs.16.88 lakhs, however, as the same was related to share transactions and since such loss was not declared by the assesee in the return of income filed, the AO has taken no cognizance of the same. In first appeal, the ld. CIT(A), NFAC has confirmed the action of the AO. Thus, the present appeal is filed by assessee before us.
3 3. In ground No.1, the assesee has challenged the action of the AO in completing the assessment by making the addition on account of unsecured loans taken under limited scrutiny where the reasons for limited scrutiny was as under :-
"Large values of share or unit reported in Securities Transaction Tax Return which is settled otherwise than by the actual delivery or transfer (STT code 3)" and "Large value sale of shares unit reported in Securities Transaction Tax Return which is settled otherwise than by the actual delivery or transfer (STT Code 3 and Turnover in Part-A P&L Account of ITR)" with the issue of both the reasons "Whether the investment and income relating to securities transactions are duly disclosed".
Ld. AR further submitted that the reason for limited scrutiny is with regard to whether the investment and income from share business is declared or not and it has nothing to do with the examination of source of investment. Therefore, the AO has exceeded his jurisdiction of making verification and addition on the issues other than the issues referred in limited scrutiny without converting the assessment into the complete scrutiny by following due procedure of law. For this, he placed reliance on the CBDT Circular No.4 of 2007 dated 15th June, 2007, CBDT Instruction No.20/2015 dated 29.12.2015 and CBDT Instruction No.05/2015 dated 14.07.2016, copies of which are placed in the paper book at pages 11 to 15. Further the ld. AR has filed his written submissions in this regard which read as under :-
3.1. Submission in respect of Ground No.1 3.1.1. Ground No. 1. of this appeal is as follows: "Hon'ble CIT(Appeals), NFAC has erred in law and on facts in confirming the action of the learned AO even though the learned AO has exceeded his jurisdiction in a 'limited scrutiny case selected under CASS only to examine whether the investment and income 4 relating to securities transactions are duly disclosed or not and added a sum of Rs.44,00,000.00 u/s 68 of the Income Tax Act, 1961, without obtaining prior administrative approval of the concerned Pr. CIT/CIT as prescribed in Circular F. No.225/402/2018/TTA.II, Dated 28-11- 2018, and Instruction No.5/2016 [F.NO.225/269/2015-ITA.11], Dated 14-7-2016." 3.1.2. Ground No-1 goes to the root of the matter being a jurisdiction issue, even though not specifically taken before the 1" appellate authority. 3.1.3. The appellant would make a prayer before this Hon'ble Bench of the Tribunal to allow the raising of this ground for the 1" time keeping in view the ratios of the following judgments: a) National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) b) Jute Corpn of India Ltd. v. CIT [1991] 187 ITR 688 (SC) c) Siksha "O" Anusandhan vs. Commissioner of Income-tax [2012] 20 taxmann.com 798 (Orissa)
3.1.4. Paragraph 2 of the assessment order enumerates the reason for which the ITR was selected for 'limited scrutiny' and for the sake of convenience the same is reproduced hereunder: 2. The case was selected for scrutiny assessment under Computer Aided Scrutiny Selection (CASS) in 'limited scrutiny category with the reason Large values of share or unit reported in Securities Transaction Tax Return which is settled otherwise than by the actual delivery or transfer (STT code 3)" and "Large value sale of shares unit reported in Securities Transaction Tax Return which is settled otherwise than by the actual delivery or transfer (STT Code 3 and Turnover in Part-A PAL Account of ITR)" with the issue of both the reasons "Whether the investment and income relating to securities transactions are duly disclosed".
3.1.5. Recognized stock exchanges are required to file a return of taxable securities transactions in Form-1 (Annexure-11: P:34-37) as per Rule 7 of Securities Transaction Tax Rules, 2004. 3.1.6. In Form-1, codes have been assigned for different types of taxable securities transactions. STT Code 3 has been assigned to the following type of transaction: "Sale of an equity share in a company or a unit of an equity oriented fund, where (a) the transaction of such sale is entered into in a recognized stock exchange; and (b) the contract for the sale of such share or unit is settled otherwise than by the actual delivery or transfer of such share or unit."
5 3.1.7. Pertinent to mention here that when the sale of shares is settled otherwise than by the actual delivery or transfer of such shares, then such transaction is called a speculative transaction as per section 43(5).
3.1.8. As per Explanation 2 to section 28, where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business 3.1.9. During the financial year 2015-16, some of the share transactions of the appellant were settled otherwise than by the actual delivery or transfer of such shares. Accordingly, the stock exchange must have furnished the information while filing Form-1 with STT code 3. 3.1.10. As explained earlier, the appellant has not disclosed the share market transactions in her ITR because the net loss from such transactions was Rs. 16,88,418.00. 3.1.11. Accordingly, the appellant's ITR neither contained any turnover figure relating to share transactions of the appellant which were settled otherwise than by the actual delivery nor any profit/loss from such activities.
3.1.12 This has resulted in the mismatch of the information uploaded in Form-1 by stock exchanges with the information provided in ITR by the appellant.
3.1.13. It is thus evident that due to the mismatch of the turnover figure as reported in ITR with that of Form-1, 'limited scrutiny' was initiated Computer Aided Scrutiny Selection (CASS) to examine whether the investment and income relating to securities transactions are duly disclosed.
3.1.14. It is pertinent to mention here that the Income Tax Act makes a distinction between a "capital asset" and a "trading asset". Gains from the sale of "capital assets" are taxable under the head "Capital Gain" and gains from the sale of "trading assets" are taxable under the head "Profits and gains of business or profession". 3.1.15. CBDT has issued Instruction No. 1827, dated August 31, 1989, and Circular No. 4 of 2007 dated June 15, 2007 (Annexure-12; P:38-39), for guidance of the field formations laying down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. 3.1.16. Paragraph 10 of Circular No. 4 of 2007 says, "CBDT also wishes to emphasize that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising 6 of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads, Le., capital gains as well as business income."
3.1.17. Paragraph 11 of Circular No. 4 of 2007 says, "Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade."
3.1.18. CBDT has subsequently issued Circular No. 6 of 2016 to partially modify the aforesaid instruction/circular. Assessing officers have been advised not to dispute the method of accounting that is consistently adopted by a taxpayer in respect of the sale of listed shares and securities 3.1.19. Hence, to tax the income from transactions in listed shares and securities under the correct head, i.e. either under "capital gains" or under "profits and gains of business or profession", it is essential to know the manner of disclosure of investment/accounting relating to listed shares and securities transactions 3.1.20. Accordingly, the direction was issued in this 'limited scrutiny' to examine whether the investment and income relating to securities transactions are duly disclosed.
3.1.21. The 'limited scrutiny' was never initiated to examine the source of investment otherwise specific direction to examine the source of investment could have been given while issuing the 143(2) notice for 'limited scrutiny'.
3.1.22. CBDT has issued, from time to time, the following instructions for laying down the Standard Operating Procedure for handling cases under 'limited scrutiny and converting 'limited scrutiny' to 'Complete Scrutiny':
Particulars Annexure No Instruction No. 20/2015 dated 29.12.2015 Annexure-13: P:40-41 Instruction No. 05/2016 dated 14.07.2016 Annexure-14: P:42 Letter [F.NO.DGIT(VIG.)/HQ/S1/2017-18] Annexure -15: P:42 Dated 30-11-2017 3.1.23. Sub-paragraphs (a) to (c) of paragraph 3 of Instruction No. 20/2015 dated 29.12.2015, which contain the procedure for conducting the 'limited scrutiny' are reproduced hereunder:
7 a. In 'limited scrutiny cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'limited scrutiny cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'limited scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. 3.1.24. Sub-paragraph (d) of paragraph 3 of Instruction No. 20/2015 dated 29.12.2015, which contains the procedures for converting a 'limited scrutiny case to a Complete Scrutiny' case is reproduced hereunder:
(d) During the course of assessment proceedings in "limited scrutiny" cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr.CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad). 3.1.25. Instruction No. 05/2016 dated 14.07.2016 further clarified that in cases under 'limited scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'limited scrutiny' and questionnaires, enquiry, investigation, etc. would be restricted to such issues. Upon converting the case to 'Complete Scrutiny' after following the prescribed procedure, the AO may examine the additional issues besides the issue(s) involved in 'limited scrutiny'.
3.1.26. CBDT in its Letter [F.NO.DGIT(VIG.)/HQ/SI/2017-18], Dated 30-11-2017 reiterated that an Assessing Officer, in 'limited scrutiny" cases, cannot travel beyond the issues for which the case was selected. It further states that the idea behind such stipulations was to enforce checks and balances upon the powers of an AO to do fishing and roving inquiries in cases selected for 'limited scrutiny'. Paragraphs 3 and 4 of the CBDT's letter dated 30.11.2017 are reproduced hereunder to highlight that any deviation made by the learned AOs in complying with the instructions is seriously viewed by CBDT:
"3.Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making 8 assessments in 'limited scrutiny' cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26-9-2014, 29-12-2015, and 14-7-2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of 'limited scrutiny', no approval was taken from the PCIT for conversion of the 'limited scrutiny' case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension.
4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing 'limited scrutiny' assessments and should be scrupulous about maintenance of note sheets in assessment folders."
3.1.27. From the reading of 142(1) notices it is evident the learned AO has completely disregarded the instruction of CBDT and has made fishing and roving inquiries 3.1.28. The learned AO, through the 142(1) notice dated 25-05-2018, asked the appellant to furnish the following accounts and/or documents which are in no way related to the reasons for which "limited scrutiny" was initiated:
Point No.5: Details of movable & immovable properties held in your name and in the name of your family members, as on date. Point No.6: Documents evidencing deduction under chapter VI- A for A.Y. 2016-17, if any. Point No.7: Details of TDS and Name and address of Principal Tax deductors, if any.
3.1.29. The appellant, vide 5th 142(1) notice dated 23.10.2018, was asked for the 1 time to explain the source of investment in Kotak Securities, and this point was reiterated in all the subsequent 142(1) notices. 3.1.30. At the cost of repetition, it must be mentioned here that 'limited scrutiny' was initiated to examine whether investment and income are duly disclosed in ITR. It was never issued to examine the source of investment.
3.1.31. Undisputably, the learned AO has jurisdiction to examine the taxability of income arising from share transactions of the appellant which were settled otherwise than by actual delivery or transfer and as reported in Form-1 with STT code 3. 9 3.1.32. He has also the jurisdiction to examine whether the investment relating to the share transactions of the appellant which were settled otherwise than by actual delivery or transfer are duly disclosed in ITR.
3.1.33. It is submitted that the learned AO has no jurisdiction to ask for the source of investment of share transactions of the appellant which were settled otherwise than by actual delivery or transfer.
3.1.34. The learned AO, if he felt the need to examine the source of investments, could have very well converted the 'limited scrutiny' to 'complete scrutiny' after getting the due approval of the competent authority only after complying with the provisions of instructions issued by CBDT in this regard. 3.1.35. Unfortunately, disregarding Instruction No. 20/2015 dated 29.12.2015, Instruction No. No. 05/2016 dated 14.07.2016, and Letter F.NO.DGIT(VIG.)/HQ/SI/2017-18 Dated 30-11-2017, the learned AO assumed jurisdiction illegally to ask for the source of investment in Kotak Securities Limited and ultimately made an addition u/s 68 in a 'limited scrutiny case. 3.1.36. The appellant would therefore make a prayer for deletion of the addition of Rs.44,00,000.00 made u/s 68. 3.1.37. As the learned AO has assumed jurisdiction illegally and made an addition u/s 68, he can't be permitted to legalize it by allowing him to take post facto permission from the competent authority. 3.1.38. The appellant would cite some case decisions in support of her prayer. 3.1.39. In the case of Vudatha Vani Rao v. ITO [2024] 159 taxmann.com 1394 (Visakhapatnam Trib.), 'limited scrutiny' was initiated to examine the sources of the cash deposits made during the demonetization period. The learned AO added a sum of Rs.5,00,000.00 u/s 69A relating to cash deposits made before the demonetization period. The Hon'ble Tribunal deleted the addition because cash deposited before the demonetization period was beyond the scope of notice issued under section 143(2) for 'limited scrutiny' assessment.
3.1.40. In the case of Srimanta Kumar Shit v. ACIT [2024] 169 taxmann.com 185 (Kolkata Trib.), though the case was selected for 'limited scrutiny' of cash deposits during demonetization, the learned AO made additions on issues that were not part of the issues for which 'limited scrutiny' initiated. It was held that without following the procedure as contemplated in CBDT Instruction bearing No. 5 of 2016 for converting a 'limited scrutiny' assessment into a 'complete scrutiny' assessment, the AO could not assume jurisdiction to make any addition on issues that were not part of 'limited scrutiny' assessment and accordingly the assessment order was squashed.
10 Cases relied on / referred to: a) National Thermal Power Co. Ltd. v. CIT [1999] 97 Taxman 358/229 ITR 383 (SC) b) Pr. CIT v. Weilburger Coatings (India) (P.) Ltd. [2023] 155 taxmann.com 580/296 Taxman 205/463 ITR 89 (Calcutta) c) VUDATHA VANI RAO v. ΙΤΟ [2024] 159 taxmann.com 1394 (Visakhapatnam - Trib.) 3.1.41. In the case of Weilburger Coatings (India) (P.) Ltd. V. DCIT [2024] 165 taxmann.com 232 (Kolkata Trib.) it was held that where under 'limited scrutiny', the case of assessee was selected on four issues, however, Assessing Officer made addition qua set off and carry forward of brought forward unabsorbed loss and depreciation which were not subject of 'limited scrutiny', Assessing Officer exceeded his jurisdiction by enquiring into issues beyond scope of 'limited scrutiny' and thus, the impugned order was to be quashed. Cases relied on / referred to: a) National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358/229 ITR 383 (SC) b) Vijay Kumar v. ITO [IT Appeal No. 434 (Chad) of 2019, dated 12- 09-2019)
3.1.42. The decision of the Hon'ble Tribunal in the Weilburger Coatings (India) (P.) Ltd case (Supra) has been upheld by the Hon'ble High Court of Calcutta as reported in PCIT v. Weilburger Coatings (India) (P.) Ltd [2023] 155 taxmann.com 580 (Calcutta). 3.1.43. In the case of Sukhdham Infrastructures LLP V ITO [2024] 165 taxmann.com 154 (Kolkata - Trib.) it has been held that where the assessee's case was selected for 'limited scrutiny', however, Assessing Officer issued notice on issues beyond the scope of 'limited scrutiny' before the date of conversion of 'limited scrutiny' into complete scrutiny, entire assessment proceedings were to be quashed as such conversion was in clear violation of mandate given by CBDT Instruction No. 5/2016, dated 14-7-2016 Cases relied on / referred to: a) Vijay Kumar v. ITO [IT Appeal No. 434 (Chad.) of 2019, dated 12- 9-2019] (para 6) b) Dev Milk Foods (P.) Ltd. v. Addl. CIT [IT Appeal No. 6767 (Delhi) of 2019, dated 12-6-2020] (para 6). 3.1.44. Sukhdham Infrastructures LLP case (Supra) has been upheld by Hon'ble High Court in PCIT V Sukhdham Infrastructures LLP [2024] 165 taxmann.com 84 (Calcutta)
3.1.45. In the case of Dev Milk Foods (P.) Ltd V ACIT [2020] 118 taxmann.com 685 (Delhi Trib.) it has been held that where the assessee's case was converted from 'limited scrutiny' to 'complete scrutiny' on mere suspicion, entire assessment proceedings were to be quashed as such conversion was in clear violation of mandate given by CBDT's Instruction No. 5/2016, dated 14-7-2016. 11 3.1.46. This Hon'ble Bench in relying on the ratio of the judgment of Hon'ble High Court of Odisha in the case of PCIT v. Shark Mines and Minerals Pvt Ltd [2023] 151 taxmann.com 71 (Orissa), has quashed the order passed u/s 263 as the issues raised by the Pr. CIT in the revision order is unconnected to the issues in the 'limited scrutiny' assessment. 3.1.47. In the case of Rajesh Jain v. ITO [2007] 162 Taxman 212 (Chandigarh) (Mag.) it has been held that when the Assessing Officer does not have powers while making 'limited scrutiny' assessment to decide such issues which are not covered by 'limited scrutiny' notice, Commissioner (Appeals) on appeal against 'limited scrutiny assessment cannot exercise powers in excess of power vested with Assessing Officer. 3.1.48. In the case of Smt. Manju Kaushik v. DCIT[2020] 113 taxmann.com 643 (Jaipur Trib.) it has been held that the Assessing Officer had taken up the issue regarding disallowance of deduction under section 54B and initiated proceedings for 'complete scrutiny' without necessary receipt of approval from Pr. Commissioner for conversion of 'limited scrutiny' to 'complete scrutiny', assumption of jurisdiction by Assessing Officer was invalid and, consequently, the addition made by Assessing Officer was to be deleted. Cases relied on / referred to: a) CBS International Projects Pvt. Ltd. v. CIT [IT Appeal No. 144 (Delhi) of 2019, dated 28-2-2019]. 3.1.49. Accordingly, keeping in view the ratios of the judgments mentioned above, including the decisions of the Hon'ble jurisdictional High Court and Tribunal, the addition of Rs.44,00,000.00 made u/s 68 by the learned AO and subsequently confirmed by the CIT(Appeals), NFAC exceeding his jurisdiction in a 'limited scrutiny' case may kindly be deleted.
On the other hand, ld. Sr. DR submitted that the AO was well within the jurisdiction of examining the investments whether they are disclosed or not which includes the source as well as its genuineness, therefore, the action of the AO in making addition towards the investments held as unverifiable and unexplained to the satisfaction of the AO is correct and he requested for confirmation of the assessment order.
We have heard rival submissions. From the perusal of the reason given for limited scrutiny, we found that there were specifically two points 12 which need consideration of the AO, firstly, the investment and secondly is of the income from share transaction business whether these are disclosed by the assesee or not. Since the assesee has not shown any income/loss from share transaction business in her return of income filed and further no details were filed with respect of the investment made in the share transactions business, in our opinion, the AO was well within the jurisdiction for examining the investments as they were not disclosed by the assesee which include the source thereof and identity, genuineness and creditworthiness of the transaction. When the AO has reason to examine the issue of investment it covers all the aspects related to it i.e. source. As the assesee stated that investments were made out of loans taken, the AO has left with no other option but to examine these loans and it is the duty of assesee to establish the genuineness and creditworthiness of such loan creditors. Under these circumstances, we are not inclined to accept the argument of the ld. AR that the AO has exceeded his jurisdiction without following the procedure of converting the limited scrutiny assessment to the completed scrutiny. Accordingly, this ground of appeal i.e. Ground No.1 of the assesee is dismissed.
7. Ground No.2 relates to the addition of Rs.44 lakhs made on account of loans taken by the assesee for making investments in the share business.
Brief facts to this ground are that during the year under appeal the assesee has carried out certain transactions in share market with Kotak Securities Ltd. and as per the statement of account of Kotak Securities 13 Ltd.. The AO observed that the assesee has made total payment of Rs.68,50,000/- on various dates which is tabulated in the assessment
order at page 2. In order to examine the source of the said investment the assesee was asked to furnish the necessary details and it was found that the said investment was made out of the loans taken by the assesee from various persons besides some petty amounts invested out of her own capital. Therefore, the AO asked the assesee to establish genuineness of these loans and also the creditworthiness of creditors. The assesee could able to furnish part details and finally the AO was of the opinion that out of Rs.68.5 lakhs received, a sum of Rs.44 lakhs are unexplained and the AO allowed the loan of Rs.24.5 lakhs as genuine. During the course of assessment proceedings the assesee had filed the affidavits and bank statement with respect to the certain parties, however, the ld. CIT(A) did not accept the details as no such advance loans were appearing in the balance sheet of the assesee. During the course of hearing, ld. AR submitted that the assesee has filed the affidavits confirming the loans given to the assesee from all the parties besides their PAN Card and Aadhaar Card to establish that they are assessed to income tax and this way their identity is established. With regard to the source in some cases their bank statements were also filed wherein on various dates cash were withdrawn for making advances to the assesee. Accordingly the ld. AR out of Rs.44 lakhs, Rs.8,30,000/- were transferred through banking channels and out of Rs.8,30,000/-, Rs.4 lakhs were transferred by the assesee from her own savings account to current account, therefore, no 14 addition to this extent should be made. With regard to the remaining amount, ld. AR submitted that once the creditor has accepted making advances/loan to the assesee and submitted the immediate source as bank withdrawal, the same should have been treated as explained credits and no addition is required to be made. He, therefore, prayed for the deletion of the addition so made. Apart from the above, ld. AR also filed his written submission to the above ground which read as under :-
3.2. Submission in respect of grounds No.2 3.2.1. Grounds No.2 of this appeal are as follows: 3.2.2. Paragraph-2 of 142(1) notice dated 22.11.2018 (Annexure-9; P:30-31) is reproduced hereunder: 2. As per the copy of the Ledger received from the Kotak Securites Ltd., it is also found following amount have been deposited by you and credited in your trading account. Please explain the sources of such investments and evidences thereof." 3.2.3. It is thus evident that the learned AO relied on the credit entries of a ledger statement issued by Kotak Securities Ltd to make an addition u/s 68. 3.2.4. It is submitted that an addition can be made u/s 68 only when the amount is credited in the books of accounts of the assessee. Bank passbooks or bank statements are not books of accounts of an assessee. Even, the ledger copies of accounts of an assessee in the books of accounts of any other person are also not the books of accounts of the assessee. 3.2.5. In the case of CIT v. Bhai Chand N. Gandhi [1983] 141 ITR 67/[1982] 11 Taxman 59 (Bom) it has been held by the Hon'ble High Court that a passbook supplied by the bank to the assessee could not be regarded as a book of the assessee and accordingly no addition can be made u/s 68 based on any entry found in the bank passbook. 3.2.6. In the case of Smt Shanta Devi v. CIT [1988] 171 ITR 532/37 Taxman 104 (Punjab & Haryana) it has been held that addition can't be made u/s 68 based on an entry in the books of the partnership firm of which the assessee is a partner because the books of accounts of the partnership firm can't be treated as the books of a partner. 3.2.7. Following the Smt Shanta Devi case (Supra), Hon'ble High Court of Gauhati in the case of Anand Ram Raitani v. CIT [1997] 223 ITR 544 (Gauhati) held that no addition can be made u/s 68 in the assessment of a partner of a firm based on an entry found in the 15 books of accounts of the partnership firm because books of accounts of the firm cannot be treated as books of accounts of the partner of the firm. 3.2.8. In the case of Smt. Bhagwati Devi v. ITO [1993] 47 ITD 58 (Cal.), it has been held as under: "The provisions of section 68 also in our view, are not attracted in the instant case as the sum of Rs. 1 lac was not found credited in the books of account maintained by the assessee for the previous year relevant to the year under appeal. Section 68 comes into operation if any sum is found credited in the books of account maintained by the assessee and no satisfactory explanation is offered in respect of the sum so credited. The sum of Rs. 1 lac was found credited in the bank account of the assessee in Union Bank of India through the bank demand draft of Chartered Bank, Calcutta. drawn by the donor in favour of the assessee. When the amount is found directly credited to the bank account of the assessee then the provisions of section 68 are not at an attracted and. therefore, the A.C. grossly erred in coming to the conclusion that the A.O. was justified in treating the said sum of Rs. 1 lac as income from undisclosed sources under section 68 of the Income-tax Act, 1961." [Paragraph-7)
3.2.9. In the case of Nanoomal Gupta v. ACIT [2018] 95 taxmann.com 369 (Agra Trib.) it has been held that the addition made under section 68 only based on the assessee's passbook, which was not a book of account, would not be sustainable. This same view has also been held in the case of (a) Smt. Ramilaben B. Patel v. ITO [2018] 100 taxmann.com 325 (Ahmedabad Trib.) and (b) Kuldeep Jiwan Mahant v ITO [2023] 157 taxmann.com 532 (Raipur Trib.) 3.2.10. In the present case, the learned AO has obtained from Kotak Securities Ltd (KSL) a ledger account of the appellant maintained by KSL in its books of account and went on to make an addition u/s 68 based on the credit entries found in the ledger account. This ledger account can never be treated as the books of account of the appellant. 3.2.11. This point was also raised before Hon'ble CIT(A), NFAC by the appellant in its submission dated 01.02.2021 (1ª paragraph of page-2 of Annexure-16; P:45) citing the case of Mayawati v. DCIT [2008] 19 SOT 460 (Delhi). Despite this, Hon'ble CIT(A), NFAC confirmed the addition u/s 68. 3.2.12. It is therefore submitted that relying on the ratios of the judgments cited above, the addition made u/s 68 by the learned AO and subsequently upheld by Hon'ble CIT(A), NFAC, may kindly be deleted because the addition u/s 68 can never be made unless entries are found in the books of account of the assessee.
3.2.13. It may further be mentioned here that the appellant furnished a statement to the learned AO explaining the sources of amounts 16 remitted to Kotak Securities Ltd vide her letter dated 06.12.2018 (uploaded on 07.12.2018). Besides, affidavits, copies of PAN cards, and AADHAR cards of the persons from whom the appellant had received the funds were also furnished. Copies of that letter dated 06.12.2018 and the statement which explains the source of payment to Kotak Securities Ltd are attached herewith as Annexure-17; P:47- 61. 3.2.14. Besides, the appellant furnished another letter dated 13.12.2018 (uploaded on 14.12.2018) to the learned AO in support of its claim regarding the receipt of funds from different persons. A copy of that letter is attached herewith as Annexure-18; P:62-65. The appellant, in support of its submission not to make any addition, has also cited the following case laws: a) Down Town Hospital Private Limited (2004) 267 ITR 439 (Gau) b) CIT vs. Jay Deep Securities and Finance Limited (2013) 350 ITR 220 (Ali) c) CIT vs. Nipuan Auto Private Limited (2014) 361 ITR 155 (Del). d) CIT vs. Orbital Communication Private Limited (2010) 327 ITR 566 (Del) e) CIT vs. Haresh D. Mehta (2017) 86 Taxmann.com 22 (Bombay). f) Nemi Chand Kothari vs. CIT (2003) 264 ITR 254 (GAU) g) Orient Trading Company Ltd. vs. CIT (1963) 49 ITR 723 (BOM), 3.2.15. Despite this, the learned AO was not satisfied with the explanation of the appellant for an aggregate sum of Rs.44,00,000.00 out of the total amount of Rs.68,50,000.00 which was remitted to Kotak Securities Ltd. 3.2.16. Accordingly, Rs.44,00,000.00 was added to the returned income of the appellant u/s 68. 3.2.17. The appellant would like to attach herewith as Annexure-19; P:66-72 the bank statement of Kotak Bank from which the payments of Rs.68,50,000.00 have been made to Kotak Securities Limited.
3.2.18. Party-wise and the date-wise break-up of the amount added u/s 68 can be summarized as follows:
Details of the source of deposits not allowed by AO/CIT(A) Name of the person from whom the Mode of Date of Amount amount received receipt in deposit Kotak Bank Kotak Bank Kalpana Mishra (appellant) SB1 TRF or CLG 24-12-15 2.00.000 Account Kalpana Mishra (appellant) SBI TRF or CLG 21-1-16 2,00,000 Account Devi Prasad Dash TRF or CLG 21-08-15 30,000 Devi Prasad Dash TRF or CLG 12-8-15 50.000 Auro Srijan Dash TRF or CLG 23-7-15 50.000 Aura Srijan Dash TRF or CLG 12-8-15 3.00.000 17 Nalini Manjari Dash CASH 21-8-15 1,20,000 Tapaswini Pani CASH 28-7-15 4,50,000 Tapaswini Pani CASH 8-9-15 4,00,000 Tapaswini Pani CASH 12-1-16 5.00.000 Pradipta Kumar Pradhan CASH 24-8-15 8,00,000 Pradipta Kumar Pradhan CASH 25-8-15 3,00,000 Pradipta Kumar Pradhan CASH 11-1-16 5,00,000 Pradipta Kumar Pradhan CASH 14-1-16 5,00,000 Total 44,00,000 3.2.19. From the aforesaid summary, it is evident that though Mrs. Kalpana Mishra (i.e. the appellant) has remitted Rs.2,00,000.00 and Rs.2,00,000.00 on 24.12.15 and 21.01.16 respectively from her account maintained with SBI to her account maintained with Kotak Bank through the banking channel, the learned AO was not satisfied with the source and added it u/s 68. 3.2.20. It is also evident that though Sri Devi Prasad Dash (cousin of the appellant) has remitted Rs 35,000.00 and Rs.50,000.00 on 21.08.15 and 12.08.15 respectively to the appellant through the banking channel, the learned AO was not satisfied with the source and added it u/s 68. 3.2.21. Though Auro Srijan Dash (nephew of the appellant) has remitted Rs.75,000.00 and Rs.3,00,000.00 on 23.7.15 and 12.08.15 respectively to the appellant through the banking channel, the learned AO was not satisfied with the source and added it u/s 68. 3.2.22. Moreover, the learned AO also added a sum of Rs. 1,20,000.00 u/s 68 which was paid by Mrs. Nalini Manjari Dash (Aunt of the appellant) in cash to the appellant and deposited on 21.08.15. 3.2.23. Mrs. Tapaswini Pani is the cousin of the appellant. She is married to Dr. Amiya Kumar Pani, a Professor of Mathematics at the Indian Institute of Technology, Mumbai. Dr. Pani is an income tax assessee and serves as visiting faculty at various international universities. A copy of Dr. Amiya Kumar Pani's PAN was also produced. Despite this, the learned Assessing Officer (AO) rejected the appellant's explanation regarding the receipt of funds from Mrs. Tapaswini Pani and added a sum of ₹13,50,000 under Section 68. 3.2.24. Sri Pradipta Kumar Pradhan is the husband of the appellant. During the financial year 2015-16, he was employed as a reader in a college. To support the source of the payment of ₹21,00,000 to the appellant, a copy of the sanction letter for a loan of ₹27,80,000, granted in the joint names of Sri Pradipta Kumar Pradhan and the appellant, was furnished during the assessment proceedings. Despite this, the learned Assessing Officer (AO) rejected the appellant's explanation regarding the receipt of funds from Sri Pradipta Kumar Pradhan and added ₹21,00,000 under Section 68. 18 3.2.25. It is reiterated here that these disallowances were made even though the appellant had furnished copies of PAN cards and AADHAR cards of the persons from whom the appellant had received the funds and affidavits from them confirming the payment of the amounts to the appellant. 3.2.26. It is thus evident that when the appellant has discharged the initial onus, the learned AO should not have made an addition without making further inquiries. The Hon'ble CIT(Appeals), NFAC also agreed with the action of the learned AO. 3.2.27. The appellant therefore prays for deleting the addition of Rs.44,00,000.00 even on merit. 3.3. The appellant craves leave to add, amend, alter, vary, and/or withdraw any or all the above grounds of appeal at the time of hearing of the appeal.
9. On the other hand, ld. Sr. DR vehemently supported the orders of the lower authorities and submitted that the assesee has failed to establish the creditworthiness as except filing their PAN No., no details were filed whether they had filed their returns of income and whether the amount of the income declared by them were sufficient to make advance to assesee. Further the assesee has failed to explain the circumstances under which the loans were taken in cash through both the assesee and creditors, have their own bank accounts from which such cash was withdrawn. He, therefore, prayed for confirmation of the addition so made.
We have heard rival submissions and perused the material available on record. Out of the total loans of Rs.68.5 lakhs received by the assesee during the year under appeal, a sum of Rs.44 lakhs were treated as unexplained cash credit by the AO. Partywise and datewise details of the amounts so received as tabulated by the assesee in its written submission is as under :-
19 Details of the source of deposits not allowed by AO/CIT(A) Name of the person from whom the Mode of Date of Amount amount received receipt in deposit Kotak Bank Kotak Bank Kalpana Mishra (appellant) SB1 TRF or CLG 24-12-15 2.00.000 Account Kalpana Mishra (appellant) SBI TRF or CLG 21-1-16 2,00,000 Account Devi Prasad Dash TRF or CLG 21-08-15 30,000 Devi Prasad Dash TRF or CLG 12-8-15 50.000 Auro Srijan Dash TRF or CLG 23-7-15 50.000 Aura Srijan Dash TRF or CLG 12-8-15 3.00.000 Nalini Manjari Dash CASH 21-8-15 1,20,000 Tapaswini Pani CASH 28-7-15 4,50,000 Tapaswini Pani CASH 8-9-15 4,00,000 Tapaswini Pani CASH 12-1-16 5.00.000 Pradipta Kumar Pradhan CASH 24-8-15 8,00,000 Pradipta Kumar Pradhan CASH 25-8-15 3,00,000 Pradipta Kumar Pradhan CASH 11-1-16 5,00,000 Pradipta Kumar Pradhan CASH 14-1-16 5,00,000 Total 44,00,000
From the perusal of the paper book filed before us, we find that the assesee has submitted the affidavits and other documents which were also submitted before the AO during the course of hearing, however, besides filing these details no further evidence such as their return of income etc were filed to prove the creditworthiness of the loan creditors. It is also seen that a sum of Rs.21 lakhs was received by the assesee from her husband Shri Pradipta Kumar Pradhan and the immediate source of the same is explained as withdrawals from the bank account where he has taken loan against the property. All these facts need to be verified and considered by the AO, who has not made any comment on such evidences filed by the assesee. Therefore, in the interest of justice, we set aside the issue to the file of AO to make necessary verification of the loan credits and if needed, necessary summons to be issued to such loan creditors as has been held by the Hon’ble Supreme Court in the case of 20 Odisha Corporation (P) Ltd., reported in 158 ITR 78 (SC). Needless to say, the assesee be provided a reasonable opportunity before concluding the issue. Thus, this ground of appeal is partly allowed for statistical purposes.