ITO, WARD - 36(1), KOLKATA, KOLKATA vs. SHRI RAKESH AGARWAL, KOLKATA

आदेश / O R D E R

Per Dr. A. L. Saini: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2013-14, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-10, Kolkata in Appeal No.83/CIT(A)-10/Ward-36(1)/2016-17/Kol dated 14.06.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 04.03.2016.

“i) “that on the facts and circumstances of the case ld. CIT(A) has erred in deciding the assessment order passed was in violation of principles of natural justice & hence bad in law and be quashed.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

ii) that on the facts and circumstances of the case ld. CIT(A) has erred in deleting the additions under the head ‘loans &advances’. iii) that on the facts and circumstances of the case ld. CIT(A) has erred in restricting the disallowance of expenses made on account of ‘expenses claimed in earning income from other sources’ invoking u/s 57 of the I.T. Act, 1961. iv) The department craves leave to add, alter or modify the grounds of appeal.” 3. At the time of hearing none appeared on behalf of assessee in spite of issuance of notice for hearing more than one occasion and Ld. Departmental Representative(DR), was present for the appellant Revenue. In the absence of any appearance by the assessee, the appeal is being disposed of ex parte qua the assessee, after hearing Ld. DR for the Revenue on merits in terms of Rule 24 of the Income Tax Appellate, Tribunal Rules, 1963.

“I have carefully considered the action of the Ld. AO in making the impugned addition of Rs.75,75,260/-, treating the unsecured loans as not genuine, and adding the same presumably u/s 68 of the Income Tax Act, 1961. In the assessment order, the Ld. AO has observed that from the Balance Sheet as on 31.03,2013 filed Page | 2

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by the assessee during the course of assessment proceeding, the assessee- individual had disclosed certain liability amounting to Rs.43,83,994/- on account of Unsecured Loan. Similarly, a liability of Rs.31,91,266/- was shown on account of advances. The Ld. AO has recorded that the appellant was required to furnish the party-wise details of loans and advances, which however, according to the Ld. AO were not produced. As per the Ld. AO, the same were requisitioned by Order sheet entry of dated 29.01.2016. In respect of the entries relating to loans and advances, according to the Ld. AO, the assessee was required to produce documents such as the P & L account and Balance Sheet, the ITR and computation, Property-wise income details, Details of date wise loan taken and its utilization. And the utilization of fund received as advance. According to the Ld. AO, during the scrutiny, the appellant was unable to produce any of the aforementioned documents, despite several opportunities. In the reckoning of the Ld. AO, in order to verify the loan transaction, three conditions needs to be fulfilled i.e. the identity of the creditor, creditworthiness of such creditor to advance money and genuineness of the transaction. In this case, as per the reasons recorded by the Ld. AO, the onus to fulfil the aforesaid conditions lay upon the assessee and since he has defaulted on his part to confirm the said transactions, the entire amount of Loans and advances totalling to Rs.75,75,260/- (43,83,994 + 31,91,266) was to be treated as bogus liability, and treated as such. 2. During the course of the appeal, the Ld. A.R for the assessee-individual claimed that the appellant had offered the necessary information as called for during the scrutiny proceedings before the Ld. AO. Accordingly, the said details were produced in the course of the appeal. These were as under: a. Details of unsecured Loans with full name and address of unsecured loan (Rs.43,83,994/-) and current liabilities and advances (Rs.31,91,266/-) (Annexure- "B"-Page Nos,6 & 7). Also given PAN Nos. in each case (two pages). b. Loan confirmation and copy of B/s in case all 9 parties collectively marked as Annexure – “C" (Page Nos. 8 to 30). c. Confirmation with Balance Sheet of two creditor (Sri Sai Durga Steel Enterprise and Kailash Steel Enterprises (For yard advances). (Collectively marked as Annexure-"D"-(Page Nos. 31 to 40) and confirmation for two Hostel Advances and Agricultural Advances (collectively marked as Annexure-"E"-Page Nos.41- 43). 3. It was submitted that from such details, it could be appreciated that all the loans are brought forward from earlier year and after some repayment and interest, closing balance is at Rs.43,83,999/-. In the matter of the current liabilities, it was submitted that these advances are raised during the year under reference and that these had been confirmed from the parties, who were all assessed to tax too with PAN and other details relating to identity and other factual parameters.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

The assessee was asked to produce the copy of the ITR for the A.Y. in which loan was taken from the creditors along with the copy of the relevant bank statements, P & L A/c, Balance sheets and documents, proof of identity and address and copy of PAN card duly signed by the loan creditors in respect of outstanding unsecured loan balances and advances as on 31.03.2013.

The claim of deduction on account of interest paid is allowable subject to fulfilment of two conditions:- firstly the loan should be genuine and secondly the loan should be utilized for the purpose of business. In respect of loan taken during the year from one Rakesh Agarwal HUF the assessee filed copy of loan confirmation, P & L Account, Balance Sheet, Computation of Income and Bank Statement. However, in respect of outstanding loan as on 31.03.2012 the assessee stated that no new loan taken during the year and only interest provided /paid. The assessee only filed copy of loan confirmations, P & L A/c, Balance Sheets and Computation of Income. None of the documents filed are found to be signed by the loan creditors. As the assessee failed to furnish all the details in respect of brought forward loan the genuineness of the same could not be verified.

As regards advances as on 31.03.2013 the assessee furnished copy of P & L A/c and Balance Sheet of Sri Sai Durga Steel Enterprises and Kailash Steel Enterprises but without any annexure forming the part of the Balance sheet. As a result, whether advances shown in the respective balance sheet of the aforesaid parties include advances given to the assessee could not be ascertained.

Kindly refer to above appeal. You have been kind enough to supply a copy of remand report dated 18-05-2017 of LT,O. Wd-36(1) on 30-05-2017. I am pleased to offer my comments on said report as under.

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there was no difficulty for me to arrange for the same and furnished along with letter dated 05-05-2017 as above with which I furnished whatever further details he asked me to furnish. 4. Issue No. 1 - Unsecured Loan - (a) I.T.O.'s kind attention was drawn to Annexure-"B" (Page No. 6 and 7) of the original submission giving original date of each loan outstanding on 31-03-2013 and lenders full name and PAN Nos. His kind attention was also drawn to Page Nos. 8 to 30 which contains loan confirmation, and accounts of each lender. Just for sake of clarity I am pleased to enclose a statement of unsecured loans showing opening balance, repaid, during the year with interest in some cases, received during the year, interest paid and closing balance on 31-03-2013. Your ld. self will appreciate that there was an opening balance of Rs.56,74,962/- and closing balance of Rs.43,83,994/-. Only two sums of Rs.89,000/- and Rs.5,11,700/- (excluding interest credited to these accounts) were received fresh loan during the year. It is humbly submitted that loans received in past and being carried over till this year cannot be added u/s. 68. Only new loan can be a subject matter of Section 68. (b) Two new loans were received and explained as under : (i) Meena Kothari Rs. 89,000/-. Confirmation is duly signed, PAN : quoted and Balance Sheet disclosing loan attached to confirmation. (Page Nos. 8 & 9). Loan amount is reflected in her Balance Sheet. (ii) Rakesh Agarwal (HUF) (Assessee's own HUF) : Rs. 511,700/- was received. His confirmation, accounts are at page 25 to 27. Loans & Advances shown in Balance Sheet Rs. 10,91,700/- which include loan Rs.7,91,700/- lo Karta. Details and copy of acknowledgement of return are encloses. I.T,O. never asked for copies of I.T. Returns of any party. All others are an old loans and confirmations have been filed with PAN. (c) PAN Nos. of each party is there on confirmations which are all signed by each party. Why photo copy of PAN Card needed is not clear. (d) A chart showing unsecured loan position to further clarify position is enclosed with party wise details of interest for the year. (e) I.T.O. has made no adverse remark about fresh loan taken this year. His only grievance is against b/f loans on 31-03-2012 which is irrelevant. (f) Advances I.T.O. never raised the point that schedules to Balance Sheet of Sai Durga Steel Enterprises and Kailash Steel Enterprises are needed. However same are enclosed clearly showing advances in assessee's names. Page | 5

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a. The parties who have given loans to the assessee are Ms Meena Kothari, MsMridula Devi Kothari, Shri P C Kothari, Master Daksh Agarwal (Minor) Shri Kailash Chandra Agarwal, Smt. Narmada Devi Agarwal, MsPreetiAharwal, M/s Rakesh Aharwal (HUF) and MsSweta Agarwal. In the information provided to the Ld. AO, the full names and addresses of the parties, the respective PANs as well as the amounts loaned to the appellant-assessee were provided by the appellant. I also find that the appellant has provided copies of the confirmations as well as copies of the Balance Sheet of each of these entities. The copies of the confirmations of loans provided to the appellant have been signed by the loan creditors, and therefore I find that the observations of the Ld. AO are not correct in the matter. I find that the appellant has also enclosed the statement of unsecured loans showing opening balance, repaid, during the year with interest in some cases, received during the year, interest paid and closing balance on 31.03.2013, the relevant year for consideration. From such documents, it emanates that there was an opening balance of Rs.56,74,962/- and closing balance of Rs.43,83,994/-. It is also found to be correct that only two amounts of Rs.89,000/- and Rs.511,700/- (excluding interest credited to these accounts) were received fresh loan during the year. Therefore, on facts alone I find adequate merit in the contention of the appellant / Ld. A,R that the loans had been received in past and being carried over till this year, and therefore they cannot be added u/s. 68., which would be applicable, if at all to new loans.

b. It is also observed that there were only two new loans in the year under consideration, namely the case of Meena Kothari Rs,89,000/- , in which case signed conformation, the PAN, and the Balance sheet disclosing the loan were also produced before the Ld. AO. Similar was the case of the other new loan namely M/s Rakesh Agarwal (HUF), which is the assessee's own HUF. This HUF had given a loan of Rs. 511,700/- to the appellant-individual. From the documents submitted, which were also available to the Ld. AO, it is seen the appellant has produced the confirmation of accounts as well as the Balance sheet and the IT Return.

c. I also find strength that the Ld. AO did not make any specific requisition for the other details from all parties such as the Income Tax Returns copies and other related documents. In any case he loans from these parties are old loans, and the necessary confirmations have been produced.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

d. I find that the Ld. AO has made absolutely no efforts to verify the genuineness of the loans in a situation where he was not satisfied with the documents and submissions offered by the appellant. He has neither written to the parties concerned nor to the Assessing Authority of the Loan creditors who had offered the necessary details relating to PAN and balance sheet. Without doing so, I find that the Ld. AO was not justified in unilaterally reaching the extreme conclusion that the loans were not genuine.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

b. In case where there is failure of the assessee to offer satisfactory explanation to the Assessing Officer the same would justify the addition made by the Assessing officer treating it as income from undisclosed source. c. If a cash credit entry is found in the firms books, the burden primarily lies on the firm to establish that the amount was in fact given by a lender. d. It is incumbent on the part of the taxing authorities to carefully examine and take into consideration all the factors leading to genuineness and regularity in the maintenance of accounts. e. The explanations offered are required to be supported by documentary evidence or other evidence. Failure to do so invited the deeming fiction created u/s 68 of the Act.

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assessee fails to prove to the satisfaction of the Assessing Officer, the source and nature of the amount of cash credits, he is entitled to draw an inference that the receipts are of an income nature (140 ITR 151). It is not the duty of the Assessing Officer to locate the exact source of the cash credits (72 ITR 807 (SC). The burden to locate the source lies upon the assessee and he is required to explain the genuineness of the credit entry. However, in certain circumstances, this onus might shift on the Assessing Officer (98 ITR 337), In 171 ITR 373 (Madras) it was held that the production of discharged hundies and under section 68. Thereupon the burden shifted to the department to examine creditors and to provide an opportunity to the assessee to cross examine their bankers. In the matter of the furnishing of the names and addresses of the creditors, it has been held in case reported in 759 ITR 78 (SC) the assessee furnished names and addresses ofthe alleged creditors as also their GIR numbers. Now the burden, is shifted to the department to establish revenue's case; and in order to sustain the addition the Revenue has to pursue enquiry and to establish the lack of creditworthiness. Mere issue of notices under section 131 of the Income Tax Act, is not enough. The assessee having discharged the initial burden, by giving complete name and address of the bankers and confirmation letters, it was for the Income-tax Officer to show that the explanation rendered by the assessee was not true 190 ITR 396 (Bom). 11.The Hon'ble Jurisdictional Calcutta High Court has laid down in 208 ITR 465 that the assessee is expected to establish:- a. Proof of identity of his creditors; b. Capacity of creditors to advance money; c. Genuineness of transaction As for the genuineness, it is for the assessee to prove that the entry found is genuine. In 208 ITR 465 (Cal) it was held that the transaction is not genuine, simply because some, out of many, of the transactions are by cheque. Conversely, it is not open for the Assessing Officer to add token amount merely for the purpose of making the returned income into a round figure. Where certain sum of money claimed by the assessee to have been borrowed from certain persons, it is for the assessee to prove by cogent and proper evidence that they are the genuine borrowings for the reason that the facts are exclusively within the assessee's knowledge. Where the creditor appears before the Income Tax Officer but if he is unable to explain the source of credit in him hand, there cannot be addition in the hands of the assessee, because the assessee has satisfactorily explained the source of credit shown in his books as also the identity of the creditor has also been established (103 ITR 344 (Pat) and 49 ITR 723 (Bom). 12. Hon'ble Courts have opined that when there is failure of the Ld. AO to issue summons to the creditors whose names and addresses have been furnished by the assessee absolve the assessee from any further liability. In an interesting judgment, the Hon'ble Jurisdictional Calcutta High Court in case of CIT vs. Page | 9

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Kamdhenu Vyapar Co, reported in 263 ITR 692 has held that there is an inbuilt duty of the LT.O. to help the assessee by issuing Summons to the depositors to justify or otherwise confirm the creditworthiness of depositors. In the circumstances, it is to be stated that Section 68 is a charging section and it applies when the assessee's explanation with respect to the cash credit is rejected as being unsatisfactory and also where the assessee does not render any explanation. The Assessing Officer is to state how he has formed his opinion that the explanation is unsatisfactory. Hon'ble Courts have held that it is the bounden duty of the Ld. AO and the authorities up to and including the Hon'ble Tribunal to consider all the facts and record which is before them and which is in its command (which can be made available by him by exercising his authority) and then record its findings on all contentions. The enquiry too must be conducted in accordance with the rules of natural justice. All the material whether for or against the assessee must be shown to the assessee and afford him opportunity to rebut, where necessary, and meet the case of the department. In 87 ITR 395 (SC), the Hon'ble Supreme Court dismissed the appeal made by revenue on the ground that the Tribunal, which is the final fact finding authority, had arbitrarily rejected the assessee's explanation without examining the merit of the assessee's case. Considering all the different principles laid down by Hon'ble Courts in such matters as elucidated in the foregoing paragraphs, and the factual matrix apparent in the case, I am of the considered view that the disallowance made by the Ld. AO of an amount of . Rs.75,75,260 (Rs.43,83,994/-, being relatable to unsecured loans, and Rs.31,91,266/- being relatable to advances) was not justified, and therefore I am unable to sustain such disallowance. The ground of appeal is therefore allowed in favour of the assessee- appellant.”

7.The clinching fact has gone unrebutted from the Revenue side. It is therefore clear that ld CIT(A) has passed a reasoned order considering all the facts of the assessee and the applicable precedents to the facts of the assessee, as noted above. That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue is dismissed.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

"In connection to the above matter, I want to clarify you that during the year my client has purchase so many properties from vendors, against this purchase of properties my client has repayment the amount to vendor as taken a loan from local party on interest basis. During the year the major allowable expenses has claimed as interest paid on loan." The AO noted that the submission of the assessee was found to be devoid of facts and not tenable and he made addition of Rs.7,85,425/-. to the total income of the assessee as income from undisclosed sources for the present year under consideration.

“1. In this matter, it is to be observed that this issue was also remanded to the ld. AO for verification and forwarding his comments and observations. The ld. AO in the remand report, on this disputed issue has submitted as under: Issue No. 3) Interest on Loan: The assessee was asked to furnish evidence of utilization of borrowed fund in firms and the basis of claim of interest of Rs. 7,71,892/- against Rs. 98,572/- received on account of interest on capital and remuneration.

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

In support of claim of deduction on account of interest on loan the assessee furnished statement of loan taken a utilized during the year. The assessee had taken fresh loan of Rs. 5,00,000/- form Rakesh Agarwal HUF and paid interest of Rs.1,03,367/- on fresh as well as brought forward loan. As per the statement Rs.2,10,000/- was invested in Kailash Steel Enterprises as partner, Rs.2,00,000/- was utilized for repayment of loan to Smt. N.D.Agarwal, Rs.25,000/- was invested towards purchase of land, Rs.50,000/- was invested in tax savings scheme and Rs.15,000/- towards others. The assessee did not furnish any details regarding utilization of loan originally taken from Smt. N.D.Agarwal. The assessee earned interest of Rs.34,617/- from capital invested in Kailash Steel Enterprise. From the balance sheet as at 31.03.2013 it is seen that unsecured loan is primarily invested in land a land & building and in Kailash Steel Enterprise. "Interest on loan utilized for investment in land & building cannot be allowed as deduction as per the LT. Act, 1961. However, since, investment in Kailash Steel Enterprises generated interest income of Rs.34,617/- in the hands of the assessee adjustment to that extent with total interest claim of Rs.7,71,892/- can be allowed. In fine, the assessee is not entitled to claim deduction of Rs.7,37,275/- (Rs.7, 71,892 - Rs.34,617) on account of interest paid. 2. The said remand report was also offered to the appellant / Ld. A.R for rebuttal and in the rebuttal, the appellant-assessee / Ld. A.R has submitted as under: Issue No. 3 - Interest on loan Naturally utilization of loan received during the year is to be furnished. From page 6 of enclosures with submission your Ld. self can see that major items were taken in 2010 to 2012. More than 5 years has passed. In all earlier year interest was claimed and allowed. To link each loan received to utilization all past record will have to be gone through. He has income from House Property Rs.8,97,700/- (page 3 of annexure) received remuneration and interest from three firm Rs.60,000/- and Rs.35,572/- (Page-3 of annexure). His own capital is Rs.38,94,343/- on 01-04-2012. All these points have been ignored by I. T.O. particularly income from House Property. Confirmations of two squared up loan a/c for interest payment are enclosed - K.C. Agarwal (HUF) & V. Lakshmi. 3. I have carefully examined the matter of the disallowance of the claim of interest, an amount of Rs.7,85,425/-. I have adjudicated the matter of the loans in the earlier paragraphs and held the same to be genuine in the facts of the case. The question to be addressed in this ground is whether the appellant would be eligible for the claims of expenditure made against those loans. There can be no doubt that the assessee has received income from House property, a matter which appears to have been overlooked by the Ld. AO. I find that the Ld. AO has" accepted a small portion of the claim of expenditure, being Rs34,617/-. The Ld. AO has observed that as the investment in M/s Kailash Steel Enterprises generated interest income of Rs.34,617/-, in the hands of the assessee adjustment to that extent with total interest claim of Rs.7,71,892/- can be allowed. For the balance interest amount, Page | 12

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the Ld. AO has not found the claims of the appellant to be acceptable. There can be no gainsaying that when the loans have been found to be acceptable, the interest component also ought to be held as allowable. However, in the present case, the loans relate to earlier years and the appellant has, by his own admission been unable to offer a clear picture in terms of the figures which relate to interest of earlier years and interest of the current year of assessment. It was for the appellant to justify the claim fully with facts and figures. Considering the overall facts of the case, and the capital which has been explained in the hands of the appellant, however, it appears in my considered mind that there has to be an allowance for the interest component. In my view of the matter, it would meet the ends of justice if the disallowance is restricted to Rs. 3,00,000/- and the assessee- appellant is relieved of the balance disallowance. I am aware that there is an element of subjectivity in the matter; however given the dearth of figures, I am of the considered view that this is one option available for adjudicating the issue.This ground of appeal is accordingly partly allowed.”

11.The clinching fact has gone unrebutted from the Revenue side. It is therefore clear that ld CIT(A) has passed a reasoned order considering all the facts of the assessee. We do not find any infirmity in the order passed by theld CIT(A). That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue is dismissed.

Order is pronounced in the open court on 19.12.2018.

Sd/- Sd/- (S. S. GODARA) (A.L.SAINI) �या�यकसद�य/JUDICIAL लेखासद�य/ACCOUNTANT MEMBER MEMBER

कोलकाता /Kolkata;

�दनांक/ Date: 19/12/2018 (RS, Sr.PS)

ITA No.2008/Kol/2017 Assessment Year: 2013-14 Shri Rakesh Agarwal

आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to :