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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K. NARSIMHA CHARY
PER SHRI K.N. CHARY, J.M. Aggrieved by the order dated 13/03/2013 in appeal no.
695/284/2010-11/Noida relevant to the assessment year 2008- 09 passed by the Ld. Commissioner of Income Tax (Appeals), Noida, U.P. (hereinafter for short referred to as the “Ld. CIT(A)”), assessee preferred this appeal on the following grounds:
1. “That the Income as Returned by the assessee ought to have been accepted and made the basis of Assessment.
2. That the Ld. Commissioner of Income Tax (Appeals) had erred in law as well as on facts of the case in sustaining the addition of Rs.
1,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act which ought not to have been sustained by the Ld. Commissioner of Income Tax (Appeal).
3. That the Ld. Commissioner of Income Tax (Appeal) had erred in law as well as on facts of the case in sustaining the addition of Rs. 2,23,279/- as interest paid on unsecured loans and treated it as Income of the assessee which ought not to have been treated it as Income of the assessee.
4. That the Ld. Commissioner of Income Tax (Appeal) had erred in law as well as on facts of the case in sustaining the addition of Rs. 1,82,505/- being unexplained entries in Bank A/c, addition which ought not to have been sustained by the Ld. Commissioner of Income Tax (Appeal).
5. That the Ld. Commissioner of Income Tax (Appeal) had erred in law as well as on facts of the case in sustaining the addition of Rs. 7,831/- being 10% of business expenditure u/s 37(1) of Income Tax Act, addition which ought not to have been sustained by the Ld. Commissioner of Income Tax (Appeal).” 2. Briefly stated, the facts are that the assessee is deriving income by trading of Asian Paints. For the AY 2008-09 the assessee filed the return of income on 29.09.2008 declaring a net income of Rs. 1,18,102/- and during scrutiny AO made addition on four counts, namely Rs. 1,00,000/- and Rs. 1,82,505/- disallowance u/s 68, Rs. 2,23,279/- disallowance u/s 40(a)(ia) and Rs. 7,831/- disallowance u/s 37(1). Appeal preferred to the Ld. CIT (A) was dismissed by way of the impugned order. Hence, the assessee is before us in this appeal. Ground no. 1 is general in nature and does not require any specific adjudication.
In so far as ground nos. 2 & 4 are concerned, AO observed that there was a cash credit of Rs. 2 lacs on 28.09.2007 in the Federal Bank A/c of the assessee. Assessee explained that the cash credit was actually the amount withdrawn from his capital account. AO accepted the said explanation of the assessee in part to the extent of Rs. 1 lakh only. When called upon to explain the cash credit of the balance of Rs. 1 lakh assessee submitted that the said amount was received as loan from five persons and produced their affidavits. On examination the AO found that the alleged lenders were petty workers and two of them were the employees of the assessee. Their earnings are between Rs. 1,500/- and Rs. 5,000/- per month and hence, the AO found that their lending the amount was doubtful. In respect of sum of Rs. 1,82,505/- appearing in the bank account, assessee stated that a sum of Rs. 38,085/- was the maturity amount of pigmy saving account opened on the name of his daughter and Rs. 27,500/- was the compensation from Insurance Company. AO did not accept this explanation of the assessee and holding that there was no evidence explaining the other cash credit amounts also, and placing reliance on the decision reported in Gumani Ram Siri Ram vs. CIT (1975) 98 ITR 337 (P&H). AO made the addition of the entire amount. Ld. CIT (A) agreed with the AO and sustained the additions made.
It is the argument of the Ld. AR that both the parties below recorded that the assessee produced the affidavits of the lenders of Rs. 1 lakh but only on suspicion as to their financial capacity the addition was made without pointing out any specific discrepancy.
According to the Ld. AR, should there be any doubt, AO should have examined the matter a little deeper and discarded the evidence furnished by the assessee by recording reasons, but without assigning any cogent reasons the AO disbelieved the affidavits of the parties. According to him there is nothing on record to discard the sworn statement of the lenders. Ld. DR submits that the AO recorded a finding that the financial condition of the lenders is quite weak since their earning were only Rs. 1,500/- to Rs. 4,500/- per month. For this the reply of the Ld. AR is that the salary of the employees need not be the only source of income and the lender of the assessee were having agricultural income and this aspect was not considered by the AO. On a careful consideration of the matter, we are of the opinion that when it appears to the AO that the financial capacity of the lenders was weak with their earning capacity of Rs. 1,500/- to Rs. 4,500/- per month, the AO should have examined the issue by questioning them to know the source of the amounts for extending the loan to the assessee, instead of rejecting the sworn statements without scrutiny. No reasons are assigned by the AO for discarding the sworn statements and it is not known where from the AO gathered the information relating to the financial capacity of these persons. For this reason, we find that Rs. 1 lakh is not such a big amount as could not be contributed by five persons and in the absence of any material the AO should have accepted the contention of the assessee.
Now coming to the addition of Rs. 1,82,505/-, assessee explained only two amounts i.e. Rs. 38,085/- and Rs. 27,500/- as the amounts relating to pigmy savings of the daughter of the assessee and the other amount as compensation from Insurance Company. In so far as the compensation from Insurance Company is concerned the assessee could have produced the relevant documents. However, we cannot expect any such evidence in respect of Rs. 38,085/- and the pigmy savings of the daughter of the assessee cannot be termed as income of the daughter so as to club such income with the income of the assessee. Such savings of the daughter could obviously be out of the amounts provided by the assessee. We, therefore, find it just and reasonable to accept the explanation of the assessee in respect of Rs. 38,085/- and reject the contention of the assessee in respect of the balance amount. We, therefore, direct the AO to delete Rs. 1 lakh and Rs. 38,085/- and we confirm the rest of the addition. Grounds no. 2 & 4 are answered accordingly.
Now coming to the ground no. 3 which is in respect of the addition relating to the interest paid on unsecured loans, AO stated that since the purpose of obtaining loan was for business, and the assessee was claiming the deduction of interest on such loans, the assessee was required to deduct tax of such interest payments, therefore, for non deduction of TDS the interest amount of Rs. 2,23,279/- on unsecured loans was disallowed. Ld. CIT (A) records a finding on this aspect that the provisions of Section 40(a)(ia) are squarely applicable to the assessee’s case since the total sales/gross receipts/turnover from the business/profession carried out by the assessee, exceeds the monetary limit specified u/s 44AB during the financial year immediately preceding the financial year under consideration, and the assessee failed to come out with any logical or meaningful explanation to explain reasons for non-compliance of provision of Section 40(a)(ia) of the Act. Ld. AR brought to our notice that the order of the Ld. CIT (A) shows the submission of the assessee before him to the effect that the persons to whom the interest was paid by the assessee had paid the advance tax and self assessment tax over and above the tax payable, thereby not causing any loss to the Revenue and the Revenue is permitted to levy interest u/s 201(1A) even in a case where the person liable to tax has paid tax on due date, as such, if the interest expenses is disallowed it would cause undue benefit to the Revenue. There was a clear assertion by the assessee before the Ld. CIT (A) that since the deductee-assessee had paid due taxes in time on the interest income received from the assessee and duly shown in their respective return, the payment of interest cannot be treated as income of the assessee and hence, addition made on this aspect cannot be sustained. In spite of this clear submission, Ld. CIT (A) failed to deal with this aspect in his order while dealing with ground no. 3. In all fairness Ld. CIT (A) should have rejected this contention of the assessee only after considering the same and by assigning the cogent reasons. Though the Ld. CIT (A) recorded a finding that the submissions of the assessee were considered and those were found to be out of context and devoid of merits, we are unable to agree with him. It is not known how the contentions raised by the assessee by referring to the provisions u/s 201(1A) of the Act and the payment of the advance tax by the recipients of the interest amount are irrelevant. We, therefore, do not find reasoning given by the Ld. CIT (A) as satisfactory and find it difficult to sustain the same. We consider that it is a fit case to restore the ground to the file of the AO for verification of the facts pleaded by the assessee and to give a fresh finding. We, therefore, remand this ground to the file of the AO to verify whether the recipients of the interest amount have paid the advance tax and self assessment tax in respect of this particular interest amount by giving an opportunity to the assessee of being heard. Ground no. 3 is answered accordingly.
Now coming to ground no. 4, this is in respect of disallowance of Rs. 7,831/- towards 10% of the total expenses on the ground that the same is attributable to the personal use of telephone and travelling expense. In so far as telephone is concerned, we agree with the authorities below but in so far as travelling and shop expenses are concerned, we do not find it justifiable to make any disallowance without pointing out any discrepancy in respect of those two expenses. We, therefore, sustain the disallowance u/s 37 of the Act to a tune of Rs. 1,536/- and delete the rest of the same.
In the result, the appeal of the assessee is allowed in part for statistical purpose.
Order pronounced in the open court on 16.11.2017