M/S K.LALL OVERSEAS,LUDHIANA vs. ACIT,CIRCLE-6, LUDHIANA

आदेश/Order

Per Sanjay Garg, Judicial Member:

The present are the cross appeals, one by the assessee and the other by the Revenue against the order dated 06.12.2019 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as ‘CIT(A)’] pertaining to 2012-13 assessment year.

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165/CHD/2020. In this appeal, the assessee has taken following

grounds of appeal:-

the CIT(A) in upholding the additions made by the Assessing

Officer (hereinafter referred to as the ‘AO’) on account of

unexplained loans raised from six parties as mentioned in ground

No. 1 of the appeal.

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the assessment proceedings noted that the assessee had shown

unsecured loans totaling to Rs. 8,48,13,814/- in the balance

sheet claimed to have been taken in different amounts from

various parties. He further noted that total credits of Rs.

15,25,03,551/- were shown to have received from various parties

during the assessment year under consideration. On being asked

to file details to prove the identity and credit worthiness of the

creditors and genuineness of the transactions, the assessee filed

the necessary explanations in the form of confirmations, ITRs of

the creditors, bank accounts of the creditors etc., but the AO

noted that the assessee had filed the aforesaid details at a very

belated stage i.e. on 24.03.2015 whereas, the assessment was

becoming time barred on 31.03.2015. Therefore, the AO noted

that at that point of time, it was not possible for him to examine

the information and details furnished by the assessee. He noted

that the assessee had deliberately filed the details at the fag end

of the year knowing that it would not be possible for the AO to

examine the aforesaid information due to work pressures of time

barring assessments. He, therefore, treated the aforesaid

unsecured loans of Rs. 15.25 Cr as unexplained and added the

same into the income of the assessee.

assessee preferred the appeal before the CIT(A).

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application for adducing additional evidence under Rule 46 of the

Income Tax Rules alongwith necessary documents and evidences

such as confirmation of the parties, bank account statement,

Income Tax Return etc. of the creditors to prove the identify and

credit worthiness of the creditors and genuineness of the

transactions. The ld. CIT(A) forwarded the aforesaid evidences

and submissions of the assessee to the concerned AO for a

remand report. However, the ld. AO vide report dated 18.08.2016

did not report and comment relating to merits of the case but

only agitated against the admission of additional evidences by

the ld. CIT(A).

CIT(A) contending that since the AO before giving his

reply/Report has gone through the evidences and had also issued

summons to various parties and had made necessary enquiries

and as nothing adverse had been pointed out in the report,

therefore, the explanation offered by the assessee was deemed to

be accepted by the AO. However, the ld. CIT(A) again directed the

AO to verify the identity and credit worthiness of the creditor and

genuineness of the transaction. In response to that the AO

issued notices u/s 133(6) of the Income Tax Act to various

creditors and after making enquiries, he sent his report to the ld.

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CIT(A) which has been reproduced in the form of following Chart

in the order of the CIT(A) itself:

Sr. Name Amount Date on which the Document submitted before the A.O No. 1 information submitted before the A.O 1 Amrit Lal Jain 5000000/- 28.08.2017 1 .Income Tax Retrun for A.Y. 2012-13 2.Computation chart for A.Y.2012-13 3.Copy of Pass Book for A.Y.2012-13 4.Copy of Account of M/s K.Lall overseas 5.Balance sheet for A.Y. 2012-13 2. Arun Berry 4000000/- 28.08.2017 1.Income Tax Return for A.Y 2012-13 2.Computation chart for A.Y. 2012-13 3. Copy of Pass Book for A.Y. 2012-13 4 Copy of Account of M/s K.Lall overseas 5.PAN CARD 6.ADHARCARD 3 Ashok 3500000/- 28.08.2017 1. ITR for A.Y. 2012-13 Kumar Garg 2. Computation of Income for A.Y. 2012-13 3. Copy of Bank Account Statement 4. Eastman 2300000/- 28.08.2017 1. ITR for A.Y. 2012-13 Industries & . 2.Computation of Income for A.Y. 2012-13 2500000/- 3.Ledger Account statement of K. Lal overseas 5 Gautam Gupta 2500000/- 28.08.2017 1. ITR for 2012-13. 2. Computation of Income for 2012-13 3. Balance Sheet for 2011-12 6 Kaka Ram Hari 5000000/- 30.08.2017 1. ITR for A.Y. 2012-13 Chand 2. Computation of total income for A.Y. 2012-13 3. Bank Account Statement 7 7000000/-& 28.08.2017 Khanna Trade 1. ITR for 2012-13 4500000/- Chem Pvt. Ltd. 2. Computation of Income for 2012-13 3. Auditor Report 4. Balance Sheet for 2012-13 5. Bank statement 6. Copy of account of M/s K. Lal Overseas. 8 4250000/-& 29.08.2017 Kips Corner 1.ITR for 2012-13 1950000/- 2. Balance Sheet for A.Y. 2012-13 3.Bank Account Statement for 2012-13 4.Account Statement of K. Lai Overseas 9 Lakhwinder 3000000/- Reply not received Singh Chawla

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of M/s Naresh Jain HUF of M/s K. Lai Overseas 11 Rahul Jain 2500000/- N/A Copy of ITR for A.Y. 2012-13 2. Computation chart for A.Y. 2012-13 12. Rajat Khanna 3500000/- 28.08.2017 1. ITR for A.Y. 2012-13 2. Computation of Income for A.Y. 2012-13 3. Bank account statement 4. Copy of ledger account 13. Ramesh Kumar 1500000/- 30.08.2017 I.The account of M/s K.Lal Overeseas Jain for A.Y. 2011-12 and 2012-132. Copy of ITR for A.Y 2012-13 3.Copy of bank account statement.

14 Ranju Jain 2000000/- Reply not received 15. Raunaq Fabrics 3000000/- 05.9.2017 1. copy of ledger account Pvt. Ltd 2. Bank Account statement Sachin Goyal 7500000/- Reply not received 17. Sandeep Kumar 2000000/- 30.08.2017 1. Bank account statement Singal 2. ITR for A.Y. 18 Sarla Rani 1650000/- 30.07.2017 1. Ledger Account statement 2. Bank account statement 19. Sheenu Khanna 4000000/- 28.08.2017 1. ITR for A.Y. 2012-13 2. Copy of computation of income for A.Y. 2011-12 3. Bank pass book for A.Y. 2012-13 20 2500000/- 31.08.2017 Upasana Jain 1.Copy of ITR for A.Y. 2012-13 2. Copy of bank account statement 3. Copy of account of M/s K. Lal overseas 21 Sushil Garg 3000000/- N/A 1 Copy of ITR for A.Y. 2012-13 2. Copy of computation of income for A.Y. 2012-13 3. Bank account statement 22 Vikram Jain 2500000/- 30.08.2017 1. Copy of account of M/s K. Lal overseas for A.Y. 2012-13 2. The copy of computation of Income 3. Photo copy of passbook 23 .Vallabh Yarns 2000000/- 28.08.2017 1. Copy of ITR for A.Y. 2012-13 1500000/-& 2. Copy of computation of 2500000/- income for A.Y. 2012-13 3. Copy of bank statement 4. Copy of balance sheet

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reproduced above, the assessee filed its comments/rejoinder

which has been further reproduced by the ld. CIT(A) in para 3.4

of the impugned order, which for the sake of ready reference is

reproduced hereunder :

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AO and considering the evidences furnished by the assessee as

well as the rejoinder filed by the assessee to the report of the AO

accepted that the assessee has been able to prove the identity

and credit worthiness of the creditors and genuineness of the

transaction in respect of 17 parties out of total 23 parties.

However, he confirmed the additions in respect of 6 parties

observing as under :

“3.6 Keeping in view the specific report of Id. A.O., after carrying out specific enquiries , In case of following parties, I have found that the appellant has not been able to satisfactorily explain and prove genuineness and the credit worthiness of lending huge amount to appellant: 1. Gautam gupta - Rs. 25,000,000/- .The creditworthiness could not be proved, as the party could not furnish gift deed ,as gift received from father despite availing time. 2. Kipps corner-Rs. 42,50,000/- and Rs. 19,50,000/-. It has been noticed that huge cash have been deposited in bank account, w.r.t the appellant could not furnish,satisfactory reply. The party has filed its ITR showing petty income of Rs. 3,37,447/- only. On 06/07/2011 and 08/07/2011, there are entries of cash deposit of Rs. 17,50,000/- and Rs. 42,50,000/-, for which the

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appellant could not furnish satisfactory reply , as these are the dates when just before lending amounts to appellant, the same amounts have been deposited in bank in cash . 3. Lakhvinder singh chawla - Rs. 30,00,0001- . No confirmation filed by appellant, even after no verification in absence of service of notice by A.O, in enquiry proceedings. 4. Rahul Jain - RS. 25,00,000/- . It is observed that, the party has received accommodation entry of Rs. 24,62,623/- from a penny stock company M/s twenty first century ltd. It is observed from the bank statement that, the party has received amount just before lending money to the appellant concern. Therefore the creditworthiness of this party is not proven. 5. Sachin Goyal Rs. 75,00,000/- . The party has not responded during the enquiry proceedings of A.O. during appellate proceedings. No proof has been filed , in order to prove creditworthiness of this party. No bank statement furnished from where the amount has been given to the appellant, by Sh. Sachin goyal. The creditworthiness thus has remained questionable. The Individual cases of sachin goyal are also pending with the undersigned wherein the creditworthiness of the individual has not been proven, hence additions were made, therefore the requisite actions wrt creditworthiness of the individual , also needs to be taken in this year in his own case ,for the same year .

3.7 Accordingly after considering detailed submission, and reports of assessing officer the unsecured loan pertaining to the above persons have remained unexplained, hence the same is confirmed. The disallowance on account of other parties w.r.t unsecured loan by Id. A.O., also consisted opening balance from last year, even as pointed out by appellant. I have also considered various judicial pronouncements relied upon by appellant. As apparent from the facts emerged from discussion in above paragraphs , the appellant has not been able to satisfactorily prove genuineness and creditworthiness of few parties from whom the appellant has taken unsecured loans, during the year. Undoubtedly the appellant has not been able to discharge its onus wrt the same as required u/s 68. There are several decisions with regard to the appellant's duty to discharge its onus to prove the identity, genuineness and creditworthiness of unsecured loan depositors at the time of assessment proceedings. In my considered opinion the appellant has failed badly to prove all three limbs of section 68 that this identity genuineness and creditworthiness. I have also perused and considered, various case laws relied upon by the appellant. Affer careful consideration of the fads of the case and the various submission filed by the appellant and the case laws relied upon the appellant, I am not in agreement with the contention of appellant as it has failed to discharge its basic onus to prove the unsecured loans at the time of assessment proceedings. Merely furnishing of PAN and confirmation and producing financial statement is not enough. It is equally important to prove credit worthiness of these loan depositors. Various courts have also upheld this view of Id AO that, there are three limb of section 68 and it is the primary onus of assessee only to prove the identity, genuineness and creditworthiness.”

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CIT(A), the assessee has come in appeal before us.

through the record. We hereby discuss the case of each

party/creditor of the said six creditors as under :

i) Shri Gautam Gupta

credits received from Shri Gautam Gupta observing that credit

worthiness could not be proved as the party could not furnish

Gift Deed relating to gift received from father despite availing

time. The assessee in this respect has explained that in response

to the summons issued by the AO, Shri Gautam Gupta appeared

before the AO and confirmed ‘on oath’ regarding the loan given by

him of Rs. 25 lacs to the assessee. It was explained that the

source of the money was gift received by him from his father.

The amount was credited to the account of Shri Gautam Gupta by

his father through banking channel. The assessee has been

regularly paying interest and deducting TDS against the said

loan amount. Even the said loan amount has been

repaid/returned back on 18.02.2013. The fact on the file is that

the assessee has not only proved the identity and credit

worthiness of the creditor but also genuineness of the

transaction. The addition has been confirmed by the CIT(A) only

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on the ground that the Gift Deed was not produced on the file by

the said Shri Gautam Gupta. In our view, aforesaid reason

mentioned by the ld. CIT(A) is not tenable as for a gift of movable

property, the only requirement is that the gift must be given by

free will of the donor and accepted by the donee and possession

of the property is handed over. The amount has been given by

the father of Shri Gautam Gupta through banking channel, which

has been further transferred to the assessee as a loan through

banking channel. There is no requirement under law that a

written Gift Deed must be executed in respect of movable

property. In view of this, we do not find justification on the part

of the CIT(A) in confirming the aforesaid addition. The same is,

accordingly, ordered to be deleted.

ii) Kips Corner

entries of cash deposits of Rs. 17,50,000/- and Rs. 42,50,000/-

in the bank account of the party before giving loan to the

assessee by this party. The ld. CIT(A) further noted that the

assessee could not furnish satisfactory reply in respect of the

aforesaid cash deposits in the account of the said party ‘Kips

Corner’. A perusal of the chart as reproduced above shows that

the AO has not given any adverse report except the observation

that the cash was deposited on 08.07.2011. The assessee, on the

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other hand has explained that the ‘Kips Corner’ is a very known

shop having various kind of confectionary and bakery items

located at Sarabha Nagar, Main Market, Ludhiana. That as per

the Profit & Loss Account, ‘Kips Corner’ has total turnover of Rs.

31226698. That this figure indicates that almost all sale amount

is against cash. The assessee, therefore, has explained that it

was not in-genuine that the cash was deposited in the bank

account of the Kips Corner which was out of its sale proceeds,

out of which the loan amount was given by the said party to the

assessee. There is no rebuttal by any of the lower authorities in

respect of aforesaid submissions made by the assessee. The ld.

CIT(A) has also not made any adverse comment about the

aforesaid explanation given by the assessee in this respect. In

view of this, the action of the CIT(A) in confirming the aforesaid

addition does not seem to be justified. Therefore, the addition

made by the lower authorities in respect of the loans received by

the assessee from the aforesaid party namely ‘Kips Corner’ is

ordered to be deleted.

iii) Shri Lakhwinder Singh Chawla

not file any confirmation from the aforesaid party regarding the

loan amount received of Rs. 30 lacs. The ld. counsel for the

assessee in this respect has invited our attention to page 112 to

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114 of the Paper Book to submit that not only the confirmations

of the party but also the details including the bank accounts etc

were duly filed, not only before the AO but also before the CIT(A).

The ld. counsel has further invited our attention to the Chart as

reproduced in the impugned order of the CIT(A) to submit that

there are no adverse remarks made by the AO in respect of the

aforesaid loan received from the aforesaid party. It has been

further explained that even the said amount has been returned

back in the same Financial Year and the copy of the account was

also filed with the AO during the remand proceedings. In view of

this, the finding of the ld. CIT(A) that no confirmation was filed is

infact factually wrong. Therefore, the action of the CIT(A) in

confirming the addition in respect of the aforesaid party cannot

be held to be justified and the addition made in respect of the

aforesaid party by the lower authorities, therefore, is ordered to

be deleted.

iv) Shri Rahul Jain

that the said party had received accommodation entries of

Rs.24,62,623/- from a penny stock company M/s Twenty First

Century Ltd. He, therefore, held that the credit worthiness of

this party is not proved.

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15.1 The ld. counsel has invited our attention to the chart

reproduced by the CIT(A), wherein, it has been shown that the AO

has observed that notice was not served upon this party because

there was another person having the same name. It appears that

perhaps the notice stands served upon a wrong person and had

not been served upon the aforesaid party, therefore, no fault can

be attributed on the part of the said party in not appearing

before the AO. On the other hand the ld. counsel for the

assessee has invited our attention to page 138 to 143 of the

Paper Book to submit that assessee has duly filed copy of Income

Tax Return, copy of bank statement and confirmed copy of

account of the said party to prove the identity and credit

worthiness of the creditor and genuineness of the transaction.

The assessee has filed copy of the bank statement and has duly

paid the interest and deducted TDS on the interest paid. Even

the amount has been returned back on 28.12.2018 to the said

party. The assessee has duly produced on the file what was

expected from the assessee in this respect to prove the identity,

credit worthiness of the creditor and genuineness of the

transaction. Even otherwise, if there was an allegation that the

said party had received any accommodation entry from some

other party, that cannot be co-related with the assessee. The

amount in question was duly declared as income in the return of

income of the said party. Even the amount, as observed above,

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has been repaid/returned by the assessee to the said party. In

view of this, we do not find any justification on the part of the

CIT(A) in confirming the addition in respect of loan received from

the aforesaid party.

v) Shri Sachin Goyal

Sachin Goyal. The ld. CIT(A) has mentioned that the party has

not responded during the enquiry proceedings of the AO. That no

proof has been filed in order to prove the credit worthiness. He

has further pointed out that even individual cases of Shri Sachin

Goyal were also pending before the CIT(A) where the credit

worthiness of the individual has not been proven, hence

additions were made. The ld. counsel for the assessee, however,

has invited our attention to page 176 to 181 to submit that the

necessary evidences such as copy of Income Tax Return, copy of

Balance Sheet and confirmed copy of account of the said party

were duly furnished.

The ld. counsel has further invited our attention to the

Chart reproduced by the CIT(A) to submit that in respect of the

aforesaid party, the said party had filed its ITR showing

sufficient income of Rs. 29,96,741/- and that as per the balance

sheet, the said party had owned capital of Rs. 432457/- as well

as family loan of Rs. 185598345/-. Further that the interest has

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been duly paid by the assessee to the said party and TDS

thereupon also deducted and deposited with the Income Tax

Department. It has been further mentioned that the said amount

has been returned back on 24.12.2012 to the said party. The ld.

counsel has further submitted that, even otherwise, additions

were made by the AO in the hands of the said party. Once the

addition of income has been made in the hands of the said party

which shows that the said party has been taxed for the

income/credits in his account which establishes the credit

worthiness of the said party. As the above matter regarding the

aforesaid addition, as observed by the CIT(A) was pending before

the CIT(A), if the CIT(A) is satisfied about the credit worthiness

and income of the said party, then the credit worthiness of the

said party gets established and if the additions made by the AO

are confirmed, then naturally the said party would have paid

income tax in his hands on the income out of which the loan

given to the assessee is established. In any case, under the

circumstances, addition cannot be made in the hands of the

assessee in respect of the said loan amount. Therefore, the

addition made and confirmed by the lower authorities in respect

of the aforesaid party is held not justifiable and the same,

accordingly, is ordered to be deleted. In view of our observations

made above, ground of appeal No. 1 of the assessee’s appeal is

hereby allowed.

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Ground No. 2

the CIT(A) in upholding the disallowance of interest paid by the

assessee in respect of the aforesaid loan amount. Since this

ground is consequential and since we have already held the issue

relating to unsecured loans in favour of the assessee vide Ground

No. 1, therefore, the issue relating to the interest paid on the

aforesaid loans being consequential in nature is decided in

favour of the assessee. The additions made on this account are

ordered to be deleted.

Ground No. 3

the CIT(A) in upholding the disallowance of Rs. 26,32,000/- out

of interest expenditure by invoking the provisions of Section

36(1)(iii) of the Act. The ld. counsel, in this respect has invited

our attention to page 34 of the Paper Book which is copy of the

balance sheet to submit that assessee had enough funds i.e.

partner’s capital of Rs. 6.2 Crores, whereas the investment in

land, building and machinery was less than Rs. 2 Crores. The ld.

counsel has submitted that since own funds of the assessee were

sufficient to meet investment, therefore, as per the settled law

laid down by the Hon'ble Supreme Court in the case of 'Hero

Cycles P. Ltd Vs. CIT', 379 ITR 347 (SC), Hon'ble Punjab &

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Haryana High Court in the case of 'Bright Enterprises Pvt. Ltd

Vs. CIT', 381 ITR 107 and of the Hon'ble Bombay High Court on

in the case of 'CIT Vs. Reliance Utilities & Power Ltd.' 313 ITR

340 wherein the Hon'ble Courts have held that where the own

funds of the assessee are sufficient to meet the interest free

advances given during the year, then the presumption would

arise that such advances or investments have been made out of

the own funds of the assessee. Hence, respectfully following the

aforesaid decisions, the ground of appeal of the assessee is

allowed.

Ground No. 4

of the disallowance of Rs. 1,18,024/- out of interest account in

respect of certain interest free advances made by the assessee

company. The assessee during the year had made interest free

advances to certain parties totaling Rs. 9.83 lacs. The ld. counsel

has again relied upon decision of the Supreme Court in the case

of 'Hero Cycles P. Ltd Vs. CIT', 379 ITR 347 (SC) to submit that

the aforesaid unsecured loan was given by the assessee from his

own funds and that the own funds of the assessee were sufficient

to meet the aforesaid advances. In view of our discussion made

above, this issue is also squarely covered in favour of the

assessee and the same is, accordingly, decided in favour of the

assessee.

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GROUND NO.5 20. Vide ground No. 5, the assessee has agitated the action of the lower authorities in making adhoc disallowance @ 20% in respect of expenditure claimed on account of car maintenance, Mobile phone expenses, telephone expenses, travel and conveyance and car depreciation. The ld. counsel for the assessee in this respect has submitted that the aforesaid disallowance @ 20% has been made purely on adhoc basis without any justification on the part of the lower authorities. The ld. DR on the other hand has submitted that in this type of expenditure, some element of personal usage usually is involved. 21. Considering submissions of ld. representatives of both the parties, we are of the view that the adhoc disallowance @ 20% out of the aforesaid expenditure is highly excessive. Considering the overall facts and circumstances, the disallowance in respect of the aforesaid expenditure is restricted to @ 5% of the total expenditure. This ground is, therefore, partly allowed.

ITA NO. 174/CHD/2020 : 22. Now coming to the Revenue’s appeal in ITA No. 174/CHD/2020 wherein the Revenue has taken the following grounds of appeal : 1. (a) Whether on the facts and circumstances of the case the decision of CIT(A), to accept the additional evidence of the assessee, summarily, without recording any reasons, as mandated under sub-rule (2) of rule 46A of IT. Rules is correct.? (b) Whether on the facts and circumstances of the case the decision of Ld.CIT(A) in admitting additional evidence, is in violation of principles of law relating to admissibility of additional evidence u/r 46A as laid down by the ITAT, Delhi Bench 'D' in the case of ITO Vs. Mittal International (I) Pvt. Ltd. in ITA No. 1671/Del/04 dated 30.06.2008, A.Y. 2001-02 & ITA No.5706/Del/2004 dated 30.06.2008 reported in 2008-T10L-474-ITAT-DEL.? (c) Without prejudice to the above, whether on the facts and in the circumstances of the case the Ld. CIT(A) erred in not granting another opportunity to the AO for furnish comments on merit, after admission of additional evidence, in accordance with the principle of law laid down in the case of Mittal International (I) Pvt. Ltd., by ITAT, Delhi Bench 'D' in ITA No. 1671/Del/04 dated 30.06.2008.? 2. Whether on the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 13,08,03,551/- made by the Assessing Officer by not appreciating the facts and circumstances highlighted by the Assessing Officer as the

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assessee has failed to discharge its onus of establishing identity, creditworthiness and genuineness of unsecured loans taken by it. 3. Whether on the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of interest paid on unsecured loans by ignoring the fact that identity, creditworthiness and genuineness of such unsecured loans could not be established by the assessee. 4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.

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nothing adverse in respect of the aforesaid loans, has deleted the additions so made by the AO. We do not find any infirmity in the order of the CIT(A) in this respect. Ground of appeal No. 2 of the Revenue’s appeal is, therefore, dismissed. Ground No. 3

Sd/- Sd/-

( VIKRAM SINGH YADAV) ( SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member “Poonam.” आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant 2.��यथ�/ The Respondent 3.आयकरआयु�त/ CIT 4.आयकरआयु�त (अपील)/ 1. The CIT(A)5.�वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar