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Facts
The assessee's case was selected for scrutiny due to a large increase in unsecured loans and cash deposits. The Assessing Officer added Rs. 1,02,97,095/- for unexplained money under section 69A related to loans from her husband, Umang Grover, and Shri Piyush Verma, and disallowed Rs. 5,29,827/- for depreciation. The CIT(A) sustained these additions and disallowances, leading to the current appeal.
Held
The tribunal upheld the additions under section 69A for unsecured loans from Shri Umang Grover and Shri Piyush Verma, as the assessee failed to establish the genuineness and creditworthiness of the transactions. However, the tribunal allowed the depreciation claim of Rs. 5,29,827/-, finding that the assets were purchased for the assessee's business and payments were made from her accounts, despite invoices being in her husband's name.
Key Issues
Whether the additions of unsecured loans under section 69A were justified due to failure in proving genuineness and creditworthiness, and whether the disallowance of depreciation on assets whose invoices were in the husband's name was correct.
Sections Cited
Section 69A, Section 143(2), Section 142(1), Section 143(3), Section 251(2), Section 234B, Section 68, Section 44AD
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Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD
Before: SHRI SUBHASH MALGURIA & SHRI NIKHIL CHOUDHARY
This appeal has been filed by the assessee against the impugned appellate order dated 31/07/2024 (DIN & Order No.ITBA/NFAC/S/250/2024- 25/1067187092(1) passed by learned Commissioner of Income Tax (Appeals) for assessment year 2017-18. The grounds raised by the assessee are as under:
“1. BECAUSE the National Faceless Appeal Centre (NFAC) has erred in law and on facts in sustaining addition of Rs.93,08,207.53 on account of unsecured loans taken from Shri Umand Grover as unexplained money by invoking the provision of section 69A of the Income Tax Act, 1961.
BECAUSE the appellant has furnished the complete details of loan taken from Shri Umand Grover and discharged her primary onus to establish the identity and creditworthiness of the depositor as well as the genuineness of the transaction by furnishing his assessment particulars, confirmation of deposit and his bank account statement.
BECAUSE the National Faceless Appeal Centre (NFAC) has erred in law and on facts in sustaining addition of Rs.11,75,000/- on account of unsecured loan taken from Shri Piyush Verma as unexplained money by invoking the provision of section 69A of the Income Tax Act, 1961.
BECAUSE the appellant has furnished the complete details of loan taken from Shri Piyush Verma and discharged her primary onus to establish the identity and creditworthiness of the depositor as well as the genuineness of the transaction by furnishing his assessment particulars, confirmation of deposit and his bank account statement.
BECAUSE the National Faceless Appeal Centre (NFAC) has erred in law and on facts in making enhancement of income of appellant on account of loan taken from Shri Piyush Verma from Rs.8,75,000/- to Rs.11,75,000/- without giving the show cause notice under sub-section (2) of section 251 of the Income Tax Act, 1961.
6. BECAUSE the National Faceless Appeal Centre (NFAC) has erred in law and on facts in sustaining disallowance of depreciation to the extent of Rs.5,29,827/- on the ground that supporting bills and vouchers to the extent of Rs.21,55,472/- are in the name of Umang Graver and Umang Sarees whereas the name of proprietary concern of appellant is M/s Umang.
7. BECAUSE the NFAC has failed to appreciate the facts that Mr. Umang Grover is husband of the appellant and he has played a vital role in establishment of her new venture and most of the purchases of fixed assets were made by him and the suppliers has inadvertently added the title of appellant husband Grover along with the firm name M/s Umang or used his firm name M/s Umang Saree.
BECAUSE the NFAC has failed to appreciate the facts that all the payments have been made by appellant duly verifiable from her books of account.
9. BECAUSE the appellant denies for levy of interest under section 234B of the Income Tax Act, 1961.
BECAUSE the order appealed against is contrary to the facts, law and principle of natural justice.”
2. The facts of the case, in brief, are that in this case the assessee had filed her return of income on 28/09/2017 declaring total income at Rs.20,06,120/-. The case of the assessee was selected for scrutiny through CASS for the reason of large increase in unsecured loans during the year and large cash deposit during demonetization period and abnormal increase in sales with decrease in profitability as compared to preceding previous year. Notice under section 143(2) of the Act was issued on 24/09/2018 and was duly served upon the assessee through its email as well as registered post. Notices under section 142(1) of the Act were issued from time to time. The Assessing Officer passed assessment order under section 143(3) of the Acton 30/12/2019 and assessed total income of the assessee at Rs.1,28,33,042/- after making addition of Rs.1,02,97,095/- on account of unexplained money under section 69A of the Act and Rs.5,29,827/- on account of disallowance of depreciation. Aggrieved with the action of the Assessing Officer, the assessee carried the matter in appeal before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), the assessee had submitted additional evidences for admission. The additional evidences submitted by the assessee during the appellate proceedings before the learned CIT(A) were accepted by the learned CIT(A) and were forwarded to the Assessing Officer for submitting remand report. The remand report was received by the learned CIT(A) from the Assessing Officer on 30/01/2024. Considering the facts and circumstances of the case, the remand report submitted by the Assessing Officer and the comments of the assessee on remand report, the learned CIT(A) sustained the addition of Rs.93,08,207/- and Rs.11,75,000/- on account of unsecured loans taken from Shri Umang Grover and Shri Piyush Verma respectively as unexplained money. The findings of learned CIT(A), related to this issue, are reproduced as under:
Loan taken from Shri Umang Grover – husband of the appellant In this regard, the appellant has submitted bank account of Mr. Umang Grover and ledger account from her own books. However, the appellant has failed to produce copy of ITR, signed confirmation of accounts as well as financial statements of Mr. Umang Grover to establish genuineness and creditworthiness of the transaction and lender. Accordingly, addition made under section 69A on account of loan taken from Mr. Umang Grover is confirmed.
Loan taken from Shri Piyush Verma amounting to Rs.11,75,000/- Here again, the appellant has submitted bank account statement of Shri Piyush Verma as well as confirmation letter of amount advanced as loan on plain white paper. On perusal of bank account statement of Shri Piyush Verma, following observations are made:
Credits in bank Amount (in INR) Loan advanced to Amount (in INR) account of Shri the appellant Piyush Verma (B) (C) (D) (A) 30/07/2016 from 2,00,000 Loan was Umang Grover advanced to the appellant from 08/08/2016 from 78,000 IHIL total receipts noted in column 09/09/2016 from 78,000 A and B on Kush Complex 19/09/2016 16/09/2016 from 4,27,601 Kush Complex 07/10/2016 from 78,000 Loan was 3,00,000 IHIL advanced to the 25/10/2016 from 2,86,650 appellant from total receipts LIC Varanasi noted in column A and B on 26/10/2016 On 14/03/2017 7,70,000 Loan was 1,25,000 from Kush advanced on Complex 31/03/2017 10,50,000 The ledger account placed on record by the appellant shows receipt of Rs.11,75,000/- from Mr. Piyush Verma. However, receipt of Rs.1,25,000 on 31.03.2017 cannot be corroborated from the bank account of Mr. Piyush. Accordingly, receipts to the extent of Rs.1,25,000/- is unexplained money. Further, the appellant has not furnished any explanation regarding creditworthiness of transactions entered into with Mr. Piyush Verma. Merely producing copy of bank statement without any satisfactory explanation cannot justify the genuineness and creditworthiness of the lender. Further, despite affording various opportunities, the appellant failed to produce copy of ITR and/or financial statements, signed copy of confirmation of accounts from the books of Mr. Piyush Verma to corroborate her claim. Accordingly, addition to the extent of Rs.11,75,000/- is confirmed.”
3. The assessee, vide ground No. 6 of this appeal, has challenged the action of learned CIT(A) in sustaining the disallowance of depreciation to the extent of Rs.5,29,827/-. The learned CIT(A), while sustaining the disallowance of depreciation has observed as under:
In this regard, the appellant has furnished copies of invoices in the name of M/s Umang Sarees and Mr. Umang Grover, which were paid by the appellant, claiming the said payment to be the expenditure incurred for business expansion of appellant. However, I concur with the view adopted by the Assessing Officer that the contention of the appellant cannot be accepted as the bills of addition to fixed assets are clearly in the name of Mr. Umang or M/s Umang Sarees. The same cannot be accepted to be used for business expansion of the appellant.
4. Learned Counsel for the assessee, during the course of hearing before the Income Tax Appellate Tribunal, submitted that so far as the deposits of Rs.93,08,207/- taken from Mr. Umang Grover is concerned, the assessee has furnished the confirmation and filed copy of statement of account as appearing in their books of account along with their bank account statement with State Bank of India and Bandhan Bank out of which the aforesaid deposits have been made. Thus, the assessee has discharged her primary onus to establish the source of deposit along with all three necessary ingredients of cash credit i.e. (i) identity of the depositor by furnishing the assessment particulars of the depositor, (ii) creditworthiness of the depositor by furnishing his bank account statement where the huge sums are deposited / credited out of his business receipts, and (iii) the genuineness of the transactions by explaining that all the transactions have been made through banking channel, therefore the genuineness of the transaction is also beyond any doubt. Thus, the assessee has fully established the source of fresh credit of Rs.93,08,207/- in the account of Mr. Umang Grover. Regarding the deposit from Mr. Piyush Verma, the learned Counsel for the assessee submitted that during the course of appellate proceedings, the assessee had enclosed copy of bank account statement of Mr. Piyush Verma and it can be seen from the bank account that there is huge credits in his bank account which itself proves the creditworthiness. Thus, learned Counsel for the assessee submitted that the addition of Rs.1,02,97,095/- made by the Assessing Officer and sustained by the learned CIT(A) may be deleted.
5. As regards the disallowance of depreciation of Rs.5,29,827/-, learned Counsel for the assessee submitted that Mr. Umang Grover is the husband of the assessee and assessee’s firm name is “Umang”. Since the assessee’s husband was fully involved in setting up the new venture and purchasing of material, most of the suppliers have inadvertently mentioned the title of her husband along with the name of the firm i.e. Grover or his firms name M/s Umang Sarees. He submitted that the Assessing Officer has made the disallowance @30@ on the assets whereas the claim of depreciation has been made @10% on furniture and 15% on the air conditioner, bills of which are either in the name of Umang Grover or Umang Sarees. It was submitted that the depreciation of Rs.5,29,827/- be allowed.
Learned Departmental Representative, on the other hand, supported the orders of the lower authorities and submitted that in the assessment proceedings before the Assessing Officer, the assessee submitted merely PANs, confirmation letters and account statements of all four creditors as per her books of account without anything more to discharge her burden u/s 68. In her first reply dated 16/12/2019, she furnished merely the said details but after she was again served with a notice u/s 142(1) of the Act dated 19/12/2019, she informed that she would furnish the other details and produce the lenders for their examination even on very short notice. The bank statements of three, out of four creditors, were furnished by her only as additional evidences before the CIT(A) under Rule-46A but the assurance of producing the creditors in person was not fulfilled and their ITRs etc. were also not furnished even in the remand proceedings in the first appeal. Learned D.R. further submitted that the assessee failed to discharge the burden of proof on her u/s 68, therefore, the finding recorded by the Assessing Officer and the learned CIT(A) are justified. In respect of first creditor i.e. Shri Umang Grover, learned D.R. submitted that in view of the spouse relationship between the assessee and the said loan creditor, assessee was under heavy burden to prove that the sums credited in her books of account represented genuine loan transactions because he could have been produced for examination, being husband of the assessee. His ITRs for the year under appeal as well as for the subsequent year are made u/s 44AD of the Act from which the said loan transaction is not verifiable. He further submitted that when his ITR for assessment year made u/s 44AD, on the premise that no books of accounts were maintained, then how could he issue the assessee’s account statement as per his books. As regards the creditor, Shri Piyush Verma, he submitted that the assessee has recorded credit/debit entries in his name between 19/09/2016 to 31/03/2017. Though his bank account statement shows the year’s total credits figure at Rs.66,41,860/-, with opening balance as on 05/04/2016 at Rs.1,43,121/- and closing balance as on 31/03/2017 at Rs.1,82,242/-; the impugned cash credits of Rs.11,75,000/- recorded by the assessee in his name are not verifiable from his ITRs for assessment year 2016-17 to 2018-19. Learned D.R. relied on the following case laws:
(i) [1995] 214 ITR 801 (SC) Sumati Dayal vs. CIT (ii) [2021] 277 Taxman 594 (SC), Sadiq Sheikh vs. CIT (iii) [2018] 258 Taxman 160 (SC), Pavankumar M. Sanghvi. Income Tax Officer [2018] 404 ITR 601 (Gujarat) (iv) [2014] 221 Taxman 143 (Andhra Pradesh), Gayatri Associates vs. Income Tax Officer (v) [2015] 375 ITR 123 (Calcutta) CIT vs. Maithan International (vi) [2007] 291 ITR 278 (SC) CIT vs. P. Mohanakala
We have heard the rival parties and have gone through the material placed on record. As regards the first creditor i.e. Shri Umang Grover (husband of the assessee) the assessee had submitted bank account of Mr. Umang Grover and ledger account from her own books. However, the assessee has failed to produce copy of ITR, signed confirmation of accounts as well as financial statements of Shri Umang Grover to establish genuineness and creditworthiness of the transaction and lender. In view of the spouse relationship between the assessee and the said loan creditor, the assessee was under heavy burden to prove that the sums credited in her books of account represented genuine loan transactions because he could have been produced for examination. We also agree with the pleadings of learned Departmental Representative that when his ITR for assessment year 2017-18 was made u/s 44AD, on the premise that no books of account were maintained, then how could he issue the assessee’s account statement as per his books. In the case of Shri Piyush Verma, though his bank account statement shows the year’s total credits figure at Rs.66,41,860/-, with opening balance as on 05/04/2016 at Rs.1,43,121/- and closing balance as on 31/03/2017 at Rs.1,82,242/-; the impugned cash credits of Rs.11,75,000/- recorded by the assessee in his name are not verifiable from his ITRs for assessment year 2016-17 to 2018-19. The assessee has not furnished any explanation regarding creditworthiness of transactions entered into with Mr Piyush Verma. Merely producing copy of bank statement without any satisfactory explanation cannot justify the genuineness and creditworthiness of the lender. One of the essential ingredients of the loan transactions is the security of the loan amount and the resultant benefit to the lender. The assessee has not allowed any interest to the said alleged lenders, which means that the lenders are not put to any benefit on the alleged investments made by them with the assessee. Nothing has been brought on records as to how the alleged deposits made by them with the assessee would remain secured from their point of view. The refund of loan/deposit to the lender at some point of time is also a relevant factor but, the ITRs of the assessee do not indicate as to whether the said deposits have ever been refunded back, either in whole or in part thereafter, or whether they are lying with the assessee indefinitely for the purposes of her business without imparting any benefit in the form of interest or otherwise to the alleged depositors year after year. No explanation backed by evidences is brought by the assessee from this angle. Thus, keeping in view these aspects, the said loan transactions fail to the test of human probabilities also, as no prudent person would invest/deposit with any other person in such a unsecured manner without there being any benefit to the investor or depositors at all. Merely confirmatory letters, bank account statements and PAN/ITRs of the creditors are not enough to prove creditworthiness of the creditors and genuineness of the transactions as per the requirement of section 68. Hon'ble Bombay High Court in the case of CIT vs. Sadiq Sheikh (supra) held that creditors admitting that they had made payments to assessee was not sufficient to discharge burden placed on assessee by section 68. Hon'ble Andhra Pradesh High Court in the case of Gayathri Associates vs. Income Tax Officer, Hyderabad held that assessee was expected to establish proof of identity of creditors, capacity of creditors and genuineness of creditors in order to discharge onus cast on assessee. It was held that bank account details filed by assessee was not enough to satisfy requirement of section 68. Hon'ble Calcutta High Court in the case of Maithan International held that mere examination of the bank pass book, or the bank statement of the lender or confirmation or the balance sheet of the lender is also not enough. Hon'ble Supreme Court in the case of CIT vs. P. Mohankala held that if the explanation offered by the assessee about the nature and source of such sums found credited in the books of the assessee is in the opinion of the Assessing Officer not satisfactory, such opinion itself constitutes a prima facie evidence against the assessee, viz. the receipt of money, and if the assessee fails to rebut the said evidence, the same can be used against the assessee by holding that it was a receipt of an income nature. In view of the above, the addition made by the Assessing Officer and confirmed by the learned CIT(A) under section 69A on account of loan taken from Mr. Umang Grover and Mr. Piyush Verma is confirmed.
8. As regards the disallowance of depreciation of Rs.5,29,827/- on the ground that supporting bills and vouchers are in the name of Umang Grover and Umang Sarees, whereas the name of proprietary concern of assessee is M/s Umang. In this case Mr. Umang Grover is husband of the assessee and assessee’s firm name is Umang. Since the assessee’s husband was fully involved in setting up the new venture and purchasing of material, most of the suppliers of furniture and fixtures and electrical appliances had mentioned the title of her husband along with the name of the firm i.e. Grover or his firms name M/s Umang Sarees. The payments of all the bills have been made from the bank account of the assessee. Though the invoices are either in the name of Umang Grover or in the name of M/s Umang Sarees but all the payments have been made either from the bank account of the assessee or by Shri Umang Grover by debiting to account of the assessee. In view of the aforesaid, we are of the considered opinion that learned CIT(A) has erred in not allowing the depreciation as claimed by the assessee. This ground of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
(Order pronounced in the open court on 20/03/2025)