LATE SHRI SANJAY PALIYA THROUGH L/H SMT. JAISHREE PALIYA,PIPARIYA vs. THE DCIT, CIRCLE, ITARSI

आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE

BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER

आ.अ.सं./ITA. No. 922/Ind/2016 �नधा�रण वष� /Assessment Year: 2012-13

Late Shri Sanjay Paliya Through L/H Smt. JaishreePaliya Pipariya :: अपीलाथ� /Appellant PAN – ABXPP 5864H Vs

Dy. CIT, Circle :: ��यथ�/Respondent Itarsi Shri Ashish Goyal & Shri N.D. �नधा�रती क� ओर से/Assessee by Patwa राज�व क� ओर से/Revenue by Shri Mohd. Javed 24.5.2017 सुनवाई क� तार�ख Date of hearing 30.5.2017 उ�घोषणा क� तार�ख Date of pronouncement आदेश /O R D E R PER SHRI C.M. GARG, JM

This appeal has been filed by the Revenue against the order of

the learned CIT(A)-I, Bhopal, dated 10.6.2016 in First Appeal No.

CIT(A)-1/BPL/IT-641/14-15 for the assessment years 2012-13.

2. The effective grounds of appeal taken by the assessee are as

under :-

(i) That, on the facts and in the circumstances of the case, the

learned CIT(A) erred in confirming the addition of

Rs.5,00,000/- being loan received from Smt. Parvati Bai

Chouhan without considering the explanation offered by

the assessee and without considering the documents

submitted from which the genuineness of the transaction

and identity and creditworthiness of the lender is clearly

established.

(ii) That, on the facts and in the circumstances of the case, the

learned CIT(A) erred in confirming the disallowance

ofRs.,6,08,632/- of the labour and wages expenses

without considering the explanation offered by the

assessee that the regular and proper books of accounts

are maintained by the assessee and hence no

disallowance is called for.

3. That, on the facts and in the circumstances of the case, the

order of the learned CIT(A) confirming the initiation of

penalty proceedings u/s 271(1)(c) is not justified.

order of the learned CIT(A) confirming the charging of

interest of Rs. 28,292/- u/s 234B is not justified.”

noticed that the assessee had taken loan of Rs. 5 lacs from Smt.

Parvati Bai Chouhan on 29.9.2011 vide cheque no. 153401 of Bank

of India. In response to query, the assessee explained that the

lender was a close relation of the assessee and she, being a teacher,

was getting pension of Rs. 14,000/- approx. p.m. However, the

Assessing Officer noticed that an amount of Rs. 5 lacs was

deposited in cash in the same bank account just before giving of

unsecured loan to the assessee. As the lender was an old lady

pension who also did not file income tax return and as no

justification regarding this deposit of cash was given by the

assessee during the assessment proceedings, therefore, in the

absence of the creditworthiness of the lender, the Assessing Officer

added this amount to the total income of the assessee. In appeal

also the assessee could not prove the creditworthiness and the

genuineness of the transaction. The Commissioner of Income Tax

(Appeals), therefore, confirmed the action of the Assessing Officer.

Now the assessee is in appeal before the Tribunal.

submitted before us that the Commissioner of Income Tax (Appeals)

has erred in confirming the addition of Rs. 5 lacs u/s 68 of the Act

being the loan received from Smt. Parvati Bai Chouhan without

considering the explanation offered by the assessee and without

considering the arguments submitted from which the genuineness

of transaction, identity and creditworthiness of the lender was

clearly established. The learned counsel for the assessee drew our

attention to various decisions of the Hon'ble High Courts including

the decision of the Hon'ble Madhya Pradesh High Court in the case

of CIT vs. Metachem Industries; 245 ITR 160(MP), decision of the

Hon'ble Rajasthan High Court in the case of Aravali Trading

Company vs. ITO; (2010) 187 Taxman 338(Raj.) and submitted that

the assessee submitted confirmation, copy of bank statement,

Adhar card, copy of account in the books of the assessee and an

important fact that Smt. Parvati Bai Chouhan was receiving

pension of Rs. 14,000/- p.m. and the amount was given to the

assessee from her savings over the period of time. The learned

counsel for the assessee also pointed out that the assessee received

loan from Smt. Parvati Bai Chouhan on 29.9.2011 through cheque

no. 153401 of Bank of India and simply because cash was

deposited in the bank account of the lender, it does not

automatically prove that the cash deposited in the bank account of

the lender belongs to the assessee.

ratio of the decision of the Hon'ble Rajasthan High Court in the case

of Aravali Trading Company (supra) and submitted that when the

assessee has furnished all the details of lender then unless it is

established by the Assessing Officer that the cash deposited by the

lender belongs to the assessee, addition cannot be made u/s 68 of

the Act. The learned counsel for the assessee strenuously pointed

out that the assessee having discharged his burden by bringing

existence of the depositor/lender and the depositor/lender owing

the deposits then the assessee is not required to prove the source of

source. Placing reliance on the ratio of the decision of the Hon'ble

High Court of Madhya Pradesh in the case of Metachem Industries

(supra), the learned counsel for the assessee submitted that when

cash credit is found in the assessee’s books and the assessee has

established that the amount has been given to him by a particular

person then the responsibility of the assessee is over and there is

no requirement on the part of the assessee to further show whether

the amount received by him has been properly taxed in the

creditors hands. The learned counsel for the assessee submitted

that the lender, Smt. Parvati Bai Chouhan, was having only

monthly income of Rs. 14,000/- from pension and she was 78 years

old senior citizen lady and she might not have filed the return, as

she was not required to file the same as her income was not liable

to be taxed being lesser in quantum. The learned counsel for the

assessee submitted that the Assessing Officer should have brought

on record any evidence that the amount in the bank account of the

lender was the money of the assessee or not her money and when

the assessee has discharged the primary onus to establish identity,

creditworthiness of lender and genuineness of the transaction 6

through banking channel then the addition made by the Assessing

Officer and upheld by the Commissioner of Income Tax (Appeals)

u/s 68 of the Act cannot be held as sustainable and thus the same

may kindly be deleted.

action of the authorities below and submitted that as per the ratio

of the decision of the Hon'ble Gujarat High Court in the case of

Umesh Krishnani (2013) 35 taxmann.com 598(Guj.) where

substantial amount was deposited in the bank accounts of the

lender shortly prior to the issuance of cheque by them, transaction,

in question, being sham, loan amount wasa to be added to the

assessee’s taxable income u/s 68 of the Act.

the cla submitted that the ratio of the decision of the Hon'ble

Madhya Pradesh High Court in the case of Metachem Industries

(supr) is applicable to the present case being proposition laid down

by the Hon'ble High Court, therefore, the addition may kindly be

deleted.

are of the view that undisputedly the assessee has filed

confirmation, copy of bank statement, Adhar car and copy of

account of the lender in the books of the assessee, which are

available at pages 9 to 12 of the assessee’s paper book. Further, it

is also not in dispute that the assessee received loan from his

relatives Smt. Parvati Bai Chouhan through cheque. However,

controversy arose when the Assessing Officer noticed that cash

amount has been deposited in the bank account of the lender

immediately before issuance of cheque to the assessee and he made

addition u/s 68 of the Act.

decision of the Hon'ble Rajasthan High Court in the case of Aravali

Trading Company (supra) wherein their Lordships held that it could

not be presumed that the deposits made by the creditors were the

monies of the assessee and there was no basis for such

presumption and in such an event if the creditors not found to be

acceptable, the investments owned by such persons may be subjected to the proceedings for inclusion of such investments as

their income from undisclosed sources but in order to fasten

liability on the assessee by including such credits as income from

unexplained sources, nexus has to be established that the source of

deposits has flown from the assessee. Their Lordships have held

that in the absence of any such link, additions of cash credits found

in the books of accounts of the assessee could not be considered to

be unexplained income of the assessee where existence of depositor

of such credits was established and such deposits/advances/loan

were owned by such existing person. We also take respectful

cognizance of the decision of the Hon'ble High Court of Madhya

Pradesh in the case of Metachem Industries (supra) wherein their

Lordships rendering the proposition for jurisdictional High Court

held that when cash credit is found in the assessee’s books then the

responsibility of the assessee is over and there is no requirement on

the part of the assessee to further show whether the amount

received by him as loan has been properly taxed in the creditor’s

hands.

creditworthiness and source of loan from Smt. Parvati Bai Chouhan

being 78 years old senior citizen pensioner lady and the Assessing

Officer without making any inquiry from the lender lady, proceeded

to make the addition u/s 68 of the Act merely on the basis that

cash was deposited immediately before issuance of cheque to the

assessee. Unless it is established that the money deposited by the

assessee was flown from the assessee and the same was routed

through a fictitious lender by manipulating the book entry then

only the amount can be taxed in the hands of the assessee by

making the addition u/s 68 of the Act. At this juncture, we

respectfully note that since there is a direct proposition of Hon'ble

Madhya Pradesh High Court in the case of Metachem Industries

(supra) in favour of the assessee, the benefit of ratio of the decsion

of the Hon'ble Gujarat High Court in the case of Umesh Krishnani

(supra) is not available to the revenue in the present case.

Accordingly, ground no. 1 of the assessee is allowed and the

Assessing Officer is directed to delete the addition.

submitted that the Commissioner of Income Tax (Appeals) erred in

confirming the disallowance of Rs. 6,08,632/- being 5% of labour

and wages expenses without considering the explanation offered by

the assessee that the regular and proper books of accounts have

been maintained by the assessee, therefore, no disallowance is

called for.

relevant operative part para 5 at pages 2 and 3 of the assessment

order as well as para 6 of the impugned first appellate order and

submitted that the ad hoc disallowance of 5% of total expenditure

has been made as the AR of the assessee agreed that 5% of such

expenses may be disallowed because of discrepancies found by the

Assessing Officer in the books of the assessee.

assessee submitted that merely because the AR has agreed for

disallowance, the same cannot be placed as binding on the assessee

and, therefore, ad hoc addition made may kindly be deleted. 11

from para 5 of the assessment order that on being asked and

confronted by the Assessing Officer with the discrepancies found in

the books of accounts of the assessee, the AR voluntarily agreed

that 5% of expenses on wages and labour may be disallowed. Pras 5

of the assessment order reads as under :-

“5. On perusal of audited Profit & Loss Account, it was found

that the assessee has debited a sum of Rs. 1,21,72,645/-

towards labour wages expenses. Vide order sheet entry dated

09.01.2015 the assessee was asked to produce all bills and

vouchers of said expenditure. On 12.01.2015, the AR of the

assessee produced the asked bills/vouchers for verification. On

perusal of bill and vouchers of labour wages expenses, it was

observed that some of vouchers are missing and the bills and

vouchers are not maintained properly. Some of them are self-

made. Therefore, the expenses debited under the above head

are not fully verifiable. Vide order sheet entry dated 12.01.2015

the AR of the assessee was confronted with the discrepancy found and the AR of the assessee agreed that 5% of said

expenses i.e. Rs.6,08,632/- should be disallowed because of

discrpeancies found. Therefore, an amount ofRs. 6,08,632/-

should be disallowed because of discrepancies found.

Therefore, an amountofRs. 6,08,632/- is hereby disallwoed out

of labour wages expenses claimed in P&L account and added

back to the total income of the assessee.”

From the relevant para 6 of the order of the Commissioner of

Income Tax (Appeals) we observe that the Commissioner of Income

Tax (Appeals) dismissed the ground of the assessee by observing

that on verification of bills and vouchers it was noticed by the

Assessing Officer that the same were not maintained properly and

some of the vouchers were self-made and expenses under the head

were not fully verifiable, therefore, on being confronted with these

serious discrepancies, the AR agreed that 5% of such expenses may

be disallowed because of discrepancies found. On being specifically

asked by the Bench, the learned counsel for the assessee could not

controvert this fact that some discrepancies in the books of

accounts were confronted to the AR of the assessee by the A.O. and

instead of submitting proper explanation against the discrepancies

pointed out by the Assessing Officer, the AR agreed that 5% of such

expenses may be disallowed. From the observations of the

authorities below, we clearly observe that the discrepancies were

pointed out by the Assessing Officer to the AR vide order sheet entry

dated 9.1.2015 and on 12.1.2015 the AR agreed to disallowance of

5%, hence it can be safely presumed that the AR agreed to the

impugned disallowance after taking instruction from the assessee

and we also point out that as per ground no. 2 mentioned in Form

No. 35 before the Commissioner of Income Tax (Appeals) it is not

the contention or case of the assessee that the AR agreed to the ad

hoc disallowance without any instructions from the assessee. We

are, therefore, unable to see any valid reason to interfere with the

orders of the authorities below wherein they have made ad hoc-

disallowance of 5% of total expenses claimed by the assessee on

labour and wages. Therefore, the addition made by the Assessing

Officer and upheld by the Commissioner of Income Tax (Appeals) is

confirmed and consequently ground no. 2 of the assessee, being de

void of merit, is dismissed. 14

15. Ground nos. 3 and 4 are consequential in nature and ground

no. 5 is general in nature and as such they need no adjudication.

16 In the result, the appeal of the assessee is partly allowed.

The order has been pronounced in open Court on 30th

May, 2017.

Sd/- sd/-

लेखा सद�य �या�यक सद�य (O.P.Meena) (C.M. Garg) Accountant Member Judicial Member May 30, 2017.

Dn/