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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI. MAHAVIR SINGH & SHRI GIRISH AGRAWAL
PER BENCH:
This appeal by the assessee is arising out of the order of the ld. CIT(A)-1, Kanpur in appeal No.CIT(A)-I/KNP/10283/DCIT- 3/KNP/2016-17, dated 8.5.2019. The assessment was framed by the DCIT, Circle -3, Kanpur for assessment year 2014-15 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’), vide order dated 30.12.2016. 2. The first issue in this appeal of the assessee is a as regards to the order of the ld. CIT(A) confirming the action of the Assessing Officer in making the addition of Rs.12 lakhs loan taken from M/s Success Vyapar Pvt. Ltd., as unexplained and added the same to the income of the assessee under section 68 of the I.T. Act.
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We have heard the parties and gone through the facts and circumstances of the case. The brief facts of the case are that the assessee is a proprietor of M/s Gurudev Steels, who is engaged in the business of trading of iron and steel. During the course of assessment proceedings, the Assessing Officer noted that the assessee has received loan amount of Rs.12 lakhs from M/s Success Vyapar Pvt. Ltd. which was used by the assessee in its business. The Assessing Officer also noted that there is unsecured loan obtained from M/s Success Vyapar Pvt. Ltd. and carried forward from earlier years, amounting to Rs.24 lakhs. The Assessing Officer also noted that the assessee has paid interest of Rs.3,88,800/- to M/s Success Vyapar Pvt. Ltd. The Assessing Officer noted that M/s Success Vyapar Pvt. Ltd. is a Calcutta based jamakharchi Company which was established during the survey proceedings conducted by the Investigation Wing of Calcutta and also noted the statement regarded from Shri Anil Kumar Khemka, operator of M/s Success Vyapar Pvt. Ltd. The Assessing Officer also referred to the statement of one Shri Brij Kishore Agarwal regarding routing of cash deposits of M/s Success Vyapar Pvt. Ltd. through one M/s Parth Organics and then given this entry out of the cash deposits of Rs.52 lakhs, the aggregate amount of all the entries together. The Assessing Officer noted that the assessee is obtaining this loan through a modus operandi followed by M/s Success Vyapar Pvt. Ltd., being a jamakarchi Company and hence he treated this unsecured loan entry as unexplained cash credit and added the same under section 68 of the I.T. Act. Now before us, the ld. counsel for the assessee filed copy of confirmed account of the assessee in the books of M/s Success Vyapar Pvt. Ltd. regarding this unsecured loan of Rs.12 lakhs and payment of interest of Rs.4.32 lakhs
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along with bank statement evidencing the payment by cheque of Rs.3.88 lakhs. The relevant details are enclosed in the assessee’s paper book at pages 80 to 82. The assessee also filed confirmed copies of accounts in the books of Gurudev Steel regarding proceeds of Rs.24 lakhs, i.e., amounting to Rs.15 lakhs and amounting to Rs.9 lakhs as depicted in the bank accounts of the assessee. The details are enclosed at pages 83 to 84 of the assessee’s paper book. The ld. Council of the assessee also drew our attention to the audited accounts of M/s Success Vyapar Pvt. Ltd. along with audit report which is enclosed at pages 63 to 76 of the paper book and he drew our attention to the fund position as on 31.3.2014, i.e. share capital & reserve and surplus at Rs.1,59,07,600 and Rs.75,14,45,429/-. The ld. Counsel for the assessee drew our attention to this for the purpose of proving the credit worthiness of the company. The ld. Counsel for the assessee also explained that neither the Investigation Wing nor the Assessing Officer has brought out any evidence against this company that the assessee was ever investigated for the purpose of advances given in earlier years i.e. Rs.24 lakhs and this amount of Rs.12 lakhs obtained as unsecured loan during the financial year 2013 – 14 relevant to this assessment year 2014 – 15. He stated that all these evidences were filed before the Assessing Officer during the course of assessment proceedings and even before the ld. CIT(A). According to him, none of the authorities below have gone into these details and without going into the actual credit worthiness, transactions performed through bank account and the identity of the party, which is clearly established by the assessee, has treated this unsecured loan as unexplained. According to him, the facts clearly reveals that the assessee has proved the identity, creditworthiness of the party
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and genuineness of the transaction, therefore, no addition under section 68 of the I.T. Act can be made. 4. On the other hand, the ld. CIT (DR) only drew our attention to the findings recorded by the ld. CIT(A) that the assessee is unable to prove the vital ingredients of identity, creditworthiness and the genuineness of the transaction. She referred to paragraph 5.9 of the ld. CIT(A)’s order, which reads as under: “5.9 In view of the above detailed discussion of the factual matrix of the case and considering the enumerated judicial pronouncements, it is concluded that appellant company has miserably failed to prove the vital ingredients of identity, creditworthiness of the creditors and genuineness of the transaction. Therefore, undersigned find no reason to interfere with the addition made by Assessing Officer, u/s 68 of the Act. The same is therefore, confirmed and ground of appeal of the appellant is dismissed.”
In rejoinder, the ld. Counsel for the assessee stated that the CIT (DR) could not controvert the documentary evidence above noted and once that is a fact, no addition can be made by invoking the provisions of section 68 of the Act. 6. After hearing the rival contentions and going through the facts as noted above, we are of the view that there are ample evidences that the assessee has filed confirmation of M/s Success Vyapar Pvt. Ltd., balance sheets i.e. audited accounts, bank statements and the identity of the parties i.e. address. Once the party has confirmed and there are ample evidences that the transaction is genuine, we are of the view that the Assessing Officer and the ld. CIT(A) erred in making this addition. In view of
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the above, we delete this addition and allow this issue of the assessee’s appeal. 7. The next issue in this appeal of the assessee is as regards to the order of the ld. CIT(A) confirming the action of the Assessing Officer in disallowing consequential interest on the above unsecured loan added by the Assessing Officer under section 68 of the I.T. Act. The disallowance of interest is to the extent of Rs.3,88,800/-. 8. Since we have already deleted the addition made by the Assessing Officer under section 68 of the I.T. Act, this disallowance of consequential interest will not survive. Hence, we delete the addition. 9. The next issue in this appeal of the assessee is as regards to the order of the ld. CIT(A) confirming the action of the Assessing Officer in disallowing the estimated expenses at Rs.2,42,745/- @ 15%. 10. We have heard the parties and gone through the facts and circumstances of the case. We noted that the Assessing Officer during the course of assessment proceedings, noted that the assessee has debited Rs.2,45,150/- under the head depreciation on car, Rs.29,019/- under the head telephone expenses, Rs.1,85,044/- under the head vehicle running and maintenance, Rs.68,288/- under the head travelling expenses and Rs.10,90,796/- under the head freight inward, in the profit and loss accounts for the year under consideration. The total of these expenses comes to Rs.16,18,297/-. According to the Assessing Officer, the assessee has incurred expenses in cash and such expenses are not open for verification in the absence of bills and vouchers. Therefore, to cover up any possible leakage,
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he disallowed 15% of these expenses. The ld. CIT(A) also confirmed the action of the Assessing Officer. 11. We noted that none of the authorities below i.e. either the ld. CIT(A) or the Assessing Officer has recorded that the expenses incurred by the assessee is excessive or unreasonable. Secondly, there is no charge that the bills and vouchers are not there and which bill is defective. In the absence of the same, we cannot sustain the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A). Hence, we delete the addition and allow this issue of the assessee’s appeal. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 01/12/2022.
Sd/- Sd/- [GIRISH AGRAWAL] [MAHAVIR SINGH] ACCOUNTANT MEMBER VICE PRESIDENT
DATED:01/12/2022 JJ: