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Income Tax Appellate Tribunal, DELHI BENCHES “SMC” : DELHI
Before: SHRI BHAVNESH SAINI
ORDER This appeal by assessee has been directed against the order of the Ld. CIT(A), Ghaziabad, dated 30.11.2016 for the A.Y. 2012-2013.
Briefly the facts of the case are that the return of income has been filed on 21st September, 2012 declaring income of Rs.4,47,293/-. The assessee is running a proprietary concern namely M/s. Reena Steel Trading in scrap. The case was selected for scrutiny. The A.O. passed the order under section 143(3) dated 16th
2 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. February, 2015. The A.O. made addition to the income of assessee of Rs.7,45,000/- as unsecured loan, Rs.13,97,750/- towards bogus purchase and Rs.2,02,466/- on account of difference in closing stock. The A.O. completed the assessment at a total income of Rs.27,92,506/-. The assessee challenged all the additions before Ld. CIT(A). However, the appeal of assessee has been dismissed.
I have heard the Learned Representatives of both the parties and perused the material on record. All the issues are decided as under.
ISSUE NO.1 - UNSECURED LOANS :
During the course of assessment proceedings, it has been noticed that assessee has received unsecured loans from the following persons.
Ms. Gulista Begum Rs.1,50,000 2. Mohd. Shahbaz Rs. 1,45,000 3. Ms. Sabnam Begum Rs. 50,000 4. Mrs. Praveen Begum Rs. 1,00,000 5. Shri Jahangir Rs. 50,000 6. Mohd. Shahnawaz Rs. 2,50,000
3 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. 4.1. The A.O. noted that information was called for from the above persons to prove identity, genuineness of the transactions of unsecured loans and creditworthiness. The assessee was required to produce all the above persons to record their statements on oath.
But, none have been produced. The A.O. also noted that there are cash deposits in the bank account of the creditors before giving loan to the assessee of the same amount. The A.O. accordingly, noted that assessee failed to prove identity of the creditors, their creditworthiness and genuineness of the transactions in the matter and accordingly, made the addition.
4.2. The assessee submitted before Ld. CIT(A) that addition has been made because the creditors have not been produced before A.O. for examination. However, the assessee provided copy of their income tax returns, copy of ledger account of unsecured loan, copy of balance sheet and copy of the bank account of the creditors.
Therefore, burden upon assessee to prove identity of the creditors, their creditworthiness and genuineness of the transaction have been discharged. It is also explained that assessee tried his best efforts to 4 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. produce the creditors before A.O. However, none agreed to come to the Income Tax Department due to fear.
4.3. The Ld. CIT(A) considering the material on record noted that the examination of the bank accounts of the creditors shows that there have been cash deposits in all the accounts just before extending loan through cheques. None of the parties have been produced before the A.O. for examination. Therefore, assessee failed to prove genuine credit in the matter. The appeal was accordingly dismissed.
After considering the rival contentions, I do not find any merit in this ground of appeal of assessee. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that all the documents were produced to the satisfaction of the A.O, therefore, no additions should be made. He has relied upon the order of ITAT, Lucknow Bench (Third Member) in the case of Dwarkadheesh Sugar Industries vs. ITO, ITA.No.115/2011 dated 07th May, 2012 and submitted that assessee need not to prove source of the source. Merely because cash is 5 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. deposited in their account is not sufficient to reject the explanation of assessee.
On the other hand, the Ld. D.R. relied upon the orders of the authorities below and relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. Navodya Castle Pvt. Ltd., 367 ITR 306.
On consideration of the findings of the authorities below in the light of submissions of the parties, I am of the view that no interference is called for in the matter. The assessee produced copy of the income tax return, copy of the ledger account, copy of the balance sheet and bank account of the creditors before A.O. However, no confirmation from the creditors have been filed. It is also an admitted fact that before giving loans to the assessee, there are cash deposits in all the accounts of the creditors. The ITAT, Agra Bench in the case of Smt. Suman Gupta vs. ITO 138 ITD 153 considering the identical facts that there were meagre bank balance in the bank account of the creditors and cash have been deposited in their bank accounts before giving loan to the assessee, confirmed the addition under section 68 of the I.T. Act. The order of the Tribunal have been 6 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. confirmed by Hon’ble Allahabad High Court in the case of Smt.
Suman Gupta vs. CIT in ITA.No.680 of 2012 dated 07th August, 2012 by dismissing appeal of assessee. The Hon’ble Gujrat High Court in the case of Blessing Construction vs. ITO 32 taxmann.com 366 held that “where sizeable amounts were deposited in cash in account of depositors only before their withdrawal through cheques in favour of the assessee, addition was justified”. In the present case, the return of income of the creditors would show that they have declared small income and paid meagre tax. In their bank accounts, there was meagre bank balance prior to giving loan to the assessee and cash have been deposited immediately before giving loan to the assessee.
Further, assessee failed to produce any of the creditor before A.O. for examination to verify genuineness of transaction. Therefore, assessee failed to prove identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. The order of the Lucknow Bench cannot be given preference against the decision of the Hon’ble High Courts referred to above. In the result, no interference is called for. This ground of appeal of assessee is dismissed.
7 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. ISSUE NO.2 – BOGUS PURCHASES :
The A.O. asked the assessee to furnish bills and vouchers of purchases made during assessment year under appeal. The assessee has furnished the list of party-wise purchase as well as photo copies of the purchase bills. The assessee has furnished photo copy of the purchase bills to the tune of Rs.10,42,500 from M/s. H.K.
Steel Traders, Ghaziabad bearing different bills and M/s. Trilok Tripurari Trading Co. Achechja, Gautam Budh Nagar of Rs.3,55,250.
As per six purchase bills of M/s. HK Steel Traders, it has been noticed that quantity of purchase of material and rate of purchase of material did not match with the total written in all the bills. In other purchase voucher of M/s. Trilok Tripurari Trading Co. Achechja, Gautam Budh Nagar of Rs.3,55,250, quantity of material is shown in Kgs and rate of material shown at Rs.25,000 and total of bill shown Rs.3,55,250 which did not match each other. The assessee explained before A.O. that total bills amount are duly recorded in the books of account. The party from which assessee purchased material mentioning in Kg but written MT while in MT he should point out 8.690 MT but they have written 8690 MT which is a mistake due to illiteracy of the party. The 8 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. assessee purchased material of 8.690 MT or can say 8690 Kg. The A.O. however, did not accept the explanation of assessee and made the addition on account of bogus purchases of Rs.13,97,750. The assessee submitted before Ld. CIT(A) that mistake is a clerical which should be clarified from the vouchers and invoices. An example is also given as to how the item is to be considered in Kg and MT.
Assessee therefore, explained that there is no mistake in total of the purchases. The Ld. CIT(A) however, did not accept the explanation of assessee and dismissed this ground of appeal of assessee.
After considering the rival contentions, I am of the view that the matter requires reconsideration at the level of the A.O.
Learned Counsel for the Assessee submitted that it was a clerical mistake in noting the items in Kg or MT. All purchase invoices and material have been produced before the authorities below. He has also referred to invoices, copies of which are filed in the paper book.
The Ld. D.R. submitted that the matter may be remanded to the A.O. for re-consideration.
9 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. 11. In view of the above, it is clear that assessee has specifically explained the discrepancy in noting the purchases material into Kg or MT. Proper bills have been produced on record to justify the contention of the assessee. The A.O. and Ld. CIT(A) have however, not given any finding on the same. It would, therefore, show that the matter requires reconsideration at the level of the A.O. I, accordingly, set aside the orders of the authorities below and restore this issue to the file of the A.O. with a direction to re-decide this issue by verifying the facts from the invoices by appreciating the explanation of assessee. In case, A.O. has any doubt, he could have verify the facts from the concerned parties as per Law. The A.O. shall give reasonable, sufficient opportunity of being heard to the assessee.
In the result, this ground of appeal of assessee is allowed for statistical purposes.
ISSUE NO.3 – DIFFERENCE IN CLOSING STOCK :
The A.O. noted that assessee has furnished details of opening stock and closing stock and has shown closing stock of Rs.88,87,866. But as per the trading account, closing stock was shown at Rs.86,85,400. Difference of Rs.2,02,466 was added to the 10 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. income of assessee. The Ld. CIT(A) did not accept the explanation of assessee and also confirmed the addition and dismissed this ground of appeal.
13. After considering the rival contentions, I am of the view that addition is wholly unjustified. Learned Counsel for the Assessee pointed out page-30 of the paper book which is Trading and P & L A/c to show that sales have been declared in a sum of Rs.88,87,866 and closing stock is shown at Rs.86,85,400. PB-43 is Trading and P & L A/c for the period ending on 31st March, 2013 to show opening stock of Rs.86,85,400. PB-123 shows the same figure of assessment year under appeal of the opening and closing stock. Learned Counsel for the Assessee explained that there was some mistake on behalf of the Accountant which was explained before the authorities below which had not been taken into consideration.
14. In view of the above findings and material available on record and same opening stock shown in next year clearly supports the explanation of assessee that there is no difference in the valuation of the closing stock. The addition is without any justification. I, accordingly, set aside the orders of the authorities below and delete
11 ITA.No.711/Del./2017 Shri Hazi Mohd. Irfan, Ghaziabad. the addition of Rs.2,02,466. This ground of appeal of assessee is allowed.
In the result, appeal of assessee is partly allowed.