ASHWANI KUMAR JAIN,UTTAR PRADESH vs. ACIT, MEERUT

Per Anadee Nath Misshra, Accountant Member (A). The present appeal has been filed by the assessee against the order dated 29.10.2013 of CIT(A), Meerut pertaining to A.Y. 2007-08.

Grounds of appeal are as under:-

2. Because the additions made and confirmed by the CIT (A) under section 68 of the Income Tax Act are against Law and are arbitratory as in his order para 3.7 he has raised various intentions which are not the subject here in this matter as when the earlier Appeal of the Appellant was decided by the Hon'ble ITAT the Assessee was directed to produce the Creditors before the A.O. so there identification and source of funds can be established, and the Appellant did so.

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Page 2 of 12 3. Because the A.O. and CIT (A) has neither considered the fact given in the Affidavits the Creditors has submitted before the A.O. while presenting themselves for identification and the A.O. even after submissions made by them on oath by Affidavit has recorded their so called statements against the Law of natural Justice by not allowing either the Assessee or the Legal representative of the Creditors to be present while recording the statements of the creditors.” (B) Return of income was filed on 31.11.2007 declaring total income of Rs.16,983/- . Original assessment order u/s 143 of Income Tax Act, 1961 (in short “Act”) was passed on 23.03.2009 wherein total income was assessed at Rs.48,66,459/- after making the following additions u/s 68 of the Act on account of unexplained loans:- i. Smt. Harbir Kaur Narula - Rs.171505 ii. Smt. Simran Sethi - Rs.167500 iii. Shri Harbans Thekedar - Rs.3000000 iv. Ms. Sandhya Jain - Rs.359399 v. M/s. R.J.Exim - Rs.1151171 (B.1) The assessee filed appeal against the aforesaid assessment order dated23.12.2009 before Ld. Commissioner of Appeal [in short “CIT(A)”], Meerut. Ld.CIT(A) vide appellate order dated 20.07.2010 deleted the aforesaid addition of Rs.11,51,171/- in respect of loan from M/s R.J.Exim and confirmed the additions in respect of loans claimed to have been taken From Ms. Sandhya Jain & Sh. Harvansh Lal Thekedar. The Ld.CIT(A) also enhanced the additions in respect of loans claimed to have been taken from Smt. Harbir Kaur Narula and Smt. Simran Sethi. The Revenue filed appeal against the order of Ld.CIT(A) before ITAT. Vide order dated 25.04.2011 in ITA

I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT No.3733/Del/2010, ITAT, Delhi set aside the issue regarding loans claimed to have been taken by the assessee, with the file of the AO, for re-investigation, with the following observations:-

“Taking into consideration all these facts, we are of the opinion that complete facts are not available on the record. The assessee has submitted during the course of hearing that he undertakes to produce all the creditors before the AO. On due consideration of his undertaking and the other material available on record, we are of the opinion that ends of justice would meet if we set aside this issue to the file of the AO for reinvestigation. It is needless to say that our observation will not impair or injure the case of AO. They will not cause any prejudice to the defence/explanation of the assessee. We direct the assessee to produce all the creditors before the AO. Assessee shall not take more than two opportunities for producing the creditors. The AO may issue summons to those creditors for helping the assessee to produce them before him. With the above observation, the appeal of the assessee is allowed for statistical purposes.”

(B.2) The AO passed a fresh assessment order on 08.05.2012 u/s 254/143(3) of the Act wherein total addition amounting to Rs.41,61,305/- was made u/s 68 of the Act on account of unexplained loans claimed to have been taken by the assessee. The relevant portion of the assessment order is reproduced as under:-

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Court) in the case of Sri Krishna vs.CIT, 142 ITR 618. The relevant portion of the judgment is reproduced as under: “It is neither a rule of prudence nor a rule of law that the statements made in an affidavit which remains uncontroverted, must invariably be accepted as true and reliable. Ordinarily, in the absence of denial, the statements may be accepted as true but if there are circumstances which suggest that the statements on affidavit should not be accepted as true, the absence of denial by the other side, would not by itself be sufficient to clothe the statements on affidavit with truthfulness and reliability. Again a notice u/s 142(1) dated 09.04.2012 was issued to the assessee for compliance on 17.04.2012 and filed certain documents and the case was discussed. On going through the statements of the creditors and other documents filed by the assessee, the facts of the case are discussed as under:

Sh. Harbans Lal - 30 lakh Out of the four Creditors under consideration, Sh. Harbans Lal is the creditor whose statements have already been recorded by the AO during the course of Remand proceedings but due to non-compliances on the given dates by Sh. Harbans Lal, this statement could not become a part of the first remand report. It is worth mentioning that during the course of remand proceedings, a summon notice dated 15/06/10 u/s 131 of the IT Act had been issued to Sh. Harbans Lal and the date of compliance was fixed for 21/06/10. But no one appeared on the date. Only a letter had been received by the A.O. on 21/06/10 which is placed on record, in which it was mentioned that Sh. Harbans Lal Thekedar was out of station and would attend the office on 25/06/10. But on 25/06/10 also, no one appeared. Also a letter was received on 13/07/10 by the A.O. from CIT(A) that if remand report is not sent to him by 14/07/10, the case will be decided as the order needs to be passed expeditiously in terms of the directions of the Hon'ble Allahabad High Court. Hence remand report was sent on 16/07/10. Sh. Harbans Lal had appeared for hearing on 16/07/10, although he did not appear before the A.O. on the given dates. For the sake of natural justice his statement was recorded on oath and placed on record. In continuation to the remand report dated 16/07/10 according to the statement recorded, the A.O. sent the remand report again on 19/07/l0. But Ld. CIT(A) had already passed the order before this report. So the subsidiary remand report was not considered: During the time of appellate proceedings before CIT(A) and Hon'ble ITAT, the Assessee has stated that the A.O. had asked Sh. Harbans Lal to appear on 09/06/10 which was incorrect. It was the first time, Sh. Harbans Lal met the A.O. when his statement was recorded. Never had he met the A.O. before this. From the perusal of Sh. Harbans Lal's first statement recorded on 16/07/10 and second statement recorded on 11/07/11, it is clear that Sh. Harbans Lal has changed his statement.” In the statement given on 16/07/10; Sh. Harbans Lal had stated that he did not maintain books of accounts although in his affidavit he had confirmed the balance in his books. He also accepted that he was not aware I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT about the facts written in the affidavit. When asked about the amount of Sixty lakhs rupees, he expressed his ignorance and stated that he was not aware that in which form, whether by cheque or in cash, the money had been given to the assessee. Also he accepted that the money was given by his son and not by him to the assessee. He also stated that he had sold land worth Rs.60 lakhs out of which he had given Rs.30 lakhs to Sh. Ashwani Kr. Jain (Assessee) and from remaining Rs.30 lakhs he had purchased land in Nawa Shahar, Punjab. Whereas in the later statement which had been recorded during the set aside proceedings he had given entirely different statement. As per Question No.5 of the statement taken on 11/07/11; he has stated that he had sold the land jointly with his brother and borrowed 4 lakhs from him to give money to Sh. Ashwani Kr. Jain. In the earlier statement he stated that all the monetary affairs are done by his son. In the later statement he had stated that at that time he himself used to do all the work and now his son does it. From the above two statements it is clear that Sh. Harbans Lal has given contradictory statements. Relevant portion of his statement is reproduced as under:

Statement dated 16/07/10 ………………… From the above two statements it is clear that at the time of statement dated 16/07/10 Sh. Harbans Lal was not able to remember that the amount given to Sh. Ashwani Kumar Jain was whether in cash or by cheque but it is strange that in the statement dated 11/07/11, a year later he remembers that he had made the payment in cash and he had borrowed 4 Lakhs. This clearly reveals that all these are his after thoughts because the statements are contradictory. Thus the statement given cannot be relied upon. From the above mentioned facts it is clear that the assessee has failed to prove the genuineness of the transactions, Hence an amount of Rs.30 lakhs is disallowed u/s 68. (Addition:Rs.3000000)

Smt. Simran Kaur Sethi – Rs.287500/- As per the assessee's claim during the year under consideration the assessee has received Rs.2,47,500/- on 05-06-06 and Rs.40,000/- on 28- 03-06 from Smt. Simran Kaur Sethi. Statement of Smt. Simran Kaur Sethi has been taken relevant portion of which is being reproduced here. ………………………………. To prove the creditworthiness of Smt. Simran Kaur Sethi, the assessee has given two sale deeds for Rs.6,17,400/- dated 05-06-06 (Share being of Sh. Balbir Singh, Sh. Abhijeet Singh, Smt. Rani jain, Smt. Harbir Kaur, Smt. Simran Sethi) and for Rs.2,75,000/- dated 15-11-06 (Share being of Sh. Balbir Singh, Sh. Abhijeet Singh, Smt. Rani jain, Smt. Harbir Kaur, Smt. Simran Sethi). From the Statement given by Smt. Simran Kaur Sethi that she had given the POA and she was unaware of the fact about the amount paid to Sh. Ashwani Kumar Jain and neither was she aware in which form from the payment was made, either by cheque or in cash. The POA was in the name of her son instead of being in the name of her husband as per her statement. I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT

The sale deed dated 15-06-06 has no relevance since the amounts credited in the assessee's accounts are before this date. In the light of these facts, the statement of Smt. Simran Kaur Sethi cannot be relied upon. Hence the assessee has failed to prove the creditworthiness of Smt. Simran Kaur Sethi and genuineness of the transaction. So an addition of Rs.2,87,500/- is being made u/s 68. (Addition: Rs.287500) Smt. Harbir Kaur Narula – Rs.514505/-

As per the assessee's claim during the year under consideration Rs.5,14,505/- has been received from Smt. Harbir Kaur. Statement of Smt. Harbir Kaur has been taken and placed on record. Relevant portion is reproduced as under: …………………………… To prove the creditworthiness of Smt. Harbir Kaur the assessee has provided two sale deeds of land dated 05-06-06 for Rs.6,17,400/- and Rs.6,83,325/-. The lands-were sold on 05-06-06 while entries in the accounts are shown on 05-06-06 and 15-11-06. Besides, total sale proceeds amounted to Rs.683325/- while the amount shown credited is Rs.514505 (Rs.372631 + Rs.141874). As per Statement given by Smt. Harbir Kaur; the POA was in the name of her brother Sh. Balbir Singh but as per POA filed by the assessee, the POA is in the name of Abhijeet Singh and not in the name of Sh. Balbir Singh. In the light of these facts, the statement of Smt. Harbir Kaur cannot be relied upon. Hence the assessee has failed to prove the creditworthiness of Smt. Harbir Kaur and genuineness of the transaction. So an addition of Rs.5,14,505/- is being made u/s 68.

Smt.Sandhya Jain – Rs.359300/-

During the year under consideration a credit balance of Rs.3,59,300/- was shown against Smt. Sandhya Jain claimed as transactions of Shares. The statement of Smt. Sandhya Jain has been recorded and placed on record. As per her statement she has sold the shares of Surya Link Ltd. Co. to Sh. Ashwani Kumar Jain amounting to Rs.3,59,300/- which she has received back in F.Y. 07-08 But she has failed to produce any documentary evidences in support of her contention. Only copy of account of Smt. Sandhya Jain has been filed showing receiving of a cheque for Rs.3,59,300/- Only receiving of a cheque after one and a half year does not prove genuineness of liability existing on 31-03-07. Hence the amount of Rs.3,59,300/- is being disallowed u/s 68 as the assessee has failed to prove the genuineness of the transaction.” (Addition Rs.359300/-)

(B.3) The assessee filed appeal before the Ld. CIT(A) against the aforesaid assessment order dated 08.05.2012. Vide order dated 29.10.2013, Ld.CIT(A) deleted the addition of Rs.3,59,300/- in respect I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT of loan claimed to have been taken by the assessee from Smt. Sandhya Jain, and Ld. CIT(A) confirmed the remaining additions made by the AO in respect of loans claimed to have been taken Sh. Harvansh Lal, Harbeer Kaur Narula & Smt. Simran Kaur Sethi. The relevant portion of the order of the Ld.CIT(A) is reproduced as under:-

3.2. “In the assessment order, in respect of Shri Harbans Lal, the AO has stated that the statement of this party had also been recorded during the remand proceedings of the original first appellate proceedings. It has been alleged by the AO that the party had changed his stand in the second statement recorded during the reassessment proceedings when seen along with the first statement recorded on 16.07.2010. The AO has stated that originally, the individual had stated that the loan of Rs 30 lakhs was sourced from sale of agricultural land, three years earlier, for Rs 60 lakhs and information regarding the mode by which such amount was received by him and advanced to the assessee was known to his son. However, in the statement recorded during the assessment proceedings, he stated that he had sold the land, jointly owned with his brother, for Rs 50 lakhs and had advanced the money to the assessee out of his share of the sale proceeds and making borrowing of Rs 4 lakhs from his brother. Therefore, the AO considered the statements contradictory and made an addition of Rs 30 lakhs to the total income of the assessee. During the present proceedings, it has been argued that the said party had made the advanced out of the sale proceeds of agricultural land for Rs 28,70,000 and Rs 22,20,000, and the sale deeds had been filed during the reassessment proceedings. Documentary evidence had fully established the genuineness of the financial transaction between the assessee and the party and such documentary evidences have not been found to be false. An affidavit confirming the loan transaction had also been filed during the re-assessment proceedings.

3.3. In respect of Smt Simran Kaur Sethi (from whom the assessee had claimed to have received Rs 2,75,000 on 05.06.06 and Rs 40,000 on 28.03.06), the AO has mentioned that in the statement recorded, she had stated that she was not fully aware of the transaction with the assessee. Further. she had some agricultural land and the power of attorney for the sale of which had been given to her husband. Her husband had sold the land and had advanced the money to the assessee. She was unaware of any interest on such advance. The mode by which the advance was made was known either to her husband or to the accountant. Two sale deeds of Rs.6,17,400 dated OS. 06. 06 (in which there were 5 other co-owners) and of Rs 2,75,000 dated 15.11.2006 (in which there were 5 other co-owners) had been filed. The AO did not accept the genuineness of the advance in view of the fact that the party was vague about the details of the transaction. The AO has also stated

I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT that the date of the sale deed of 15.06.06 is subsequent to the credit of the sum to the account of the assessee. This statement appears to be incorrect as the sale deed is dated 05.06.06 and not 15.06.06. According to the assessee, the credit to the cashbook of the assessee is on 05.06.06, the date of the sale deed. It is clarified that the credit is not to the bank account of the assessee but to his cashbook.

3.4. In respect of Smt Harbir Kaur Narula (from whom the assessee has claimed to have received Rs 5,14,500), it was claimed that the amounts were sourced from sale of land made by two sale deeds dated 05.06.2006. In response to a question posed to this individual during the statement recorded at the time of re assessment proceedings wherein it was stated that the land was sold by her brother and the amount was advanced to the assessee by him. She stated that she does not have much knowledge about the transaction and that no interest had been charged on the advance. According to the AO, the power of attorney of the said individual was not in the name of her brother but in some other name. Therefore, the party had failed to prove the genuineness of the transaction and her creditworthiness.

3.5. As regards a credit balance in the name of Smt. Sandhya Jain of Rs 3,59,300, it was claimed that this related to a transaction in shares of Surya Zinc Ltd. Statement of the said individual was recorded according to which, she had sold the shares to the assessee and the amount was paid to her by the assessee in the subsequent year. The AO noted that the individual had failed to produce any documentary evidence in support of her contention and only a copy of her account has been furnished wherein a cheque of an amount equivalent to the stated consideration has been credited. Therefore, the balance was treated as unexplained credit and added to the total income of the assessee.

3.6. Initial set of submissions dated 04.01.2013 were filed by the assessee himself. Subsequently Shri Sanjay Malik, advocate attended the proceedings and filed a fresh set of submissions along with a letter dated 19.06.2013. As regards the loans claimed to have been received from Shri Harbans Lal, it was stated that the documentary evidences (sale deed of land and affidavit of the party confirming the transaction) fully established the genuineness of the financial transaction with the assessee. Such evidences have not been proved to be false and no evidence in rebuttal has been placed on record by the AO. Copy of the affidavit has been filed which states that the person was an agriculturist and was uneducated and had given the loan to the assessee out of the sale proceeds of two properties. Copies of the sale deeds have also been given. Insofar as the loans claimed to have been received from Smt Harbir Kaur Narula is concerned, it was pointed out that the person was a regular income tax assessee, had confirmed the financial transaction in an affidavit, had furnished copy of the sale deeds from which the amount advanced had been sourced and had therefore proved financial worth as also the genuineness of the transaction. Copy of the return filed by her along with computation of income for the A.Y. 2007 - 08 has been filed wherein it is seen that she has claimed income from stitching and embroidery. Copies of the sale I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT deeds dated 03.06.2006 and 15.11.2006 for the sale of jointly owned land have also been furnished. The details in respect of the loan from Smt Simran Sethi submitted during the appellate proceedings is similar to the details submitted in the case of Smt Harbir Kaur. Insofar as Smt Sandhya Jain is concerned, it has been stated that she was regularly assessed to income tax and had actually owned the shares which were transferred to the assessee. She has filed an affidavit confirming the transaction. Her balance sheet as on 31.03.2007 shows various investments including the consideration of shares receivable from the assessee. A certificate of the auditor of the company whose shares had been transferred has also been filed, which shows that 35,930 shares of the said company were in the name of this individual as on 31.03.2006 and in the name of assessee as on 31.03.2007, thereby meaning that the shares had been transferred to the assessee during the year under consideration. Copy of the hank account of the said individual has also been filed which shows the credit of an equivalent amount on 10.07.2008, purportedly transferred by the assessee. A remand report was called from the AO and the same has been furnished by the letter dated 29.08.2013. The remand report basically recounts the various contention of the AO in the assessment order.

3.7. The relevant facts of the case have been considered. As regards the loans from the three parties, it is noted that all these loans arc in cash, are without interest and no evidence has been brought on record to show that such loans have been repaid till date. Insofar as the loan from Shri Harbans Lal s concerned, it is noted that this party is not related to the assessee and is an agriculturist, who does not appear to have any other source of income. The person does not appear to have been assessed to income tax or appear to have filed any return of income showing the sale transaction of land notwithstanding that the sale deeds categorically states that the sold land is located within and outside the municipal limits of the city of Meerut. (The present AO may please note this aspect and intimate to the AO concerned having jurisdiction over the case of this party to take appropriate action). Be as it may, it is inconceivable that a person of meagre means, who has had windfall profits on sale of ancestral land, would invest all such profits in cash with an unrelated person who is not giving any return on the same (as apparently the loans are interest-free), has not made any documentation in respect of a substantial sum of Rs 30 lakhs given as loan and even the period for which the loan has been given has not been specified. Even 5 years after such loan, it remains outstanding and apparently the party has not taken any steps for the recovery of such loan. Besides, the assessee has not produced any bank account in which such advance has been deposited nor has he specified the purpose for which such loans had been raised. Under the circumstances discussed above and in the absence of an iota of independently verifiable evidence, the genuineness of the transaction cannot be said to have been proved. As regards the loans from the two ladies, n the statement recorded during the re-assessment proceedings, they do not appear to have proper knowledge of the transaction with the assessee. While it does appear that they are related to the assessee, it is noted that the loan has been given in cash and the assessee has not stated how such cash has been I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT utilised/deposited in any bank account. Therefore, in these cases also, the genuineness of the transactions are not proved. It is also noted that even if such loans are treated as genuine, these have been received in violation of the provisions of section 269SS of the Act and in case these are held to be genuine at any later stage, the relevant penal provisions for such violation will be attracted. Subject to this remark, the loans from the aforesaid three parties are treated as nongenuine and the resultant addition to the total income is confirmed. As regards the credit balance in the name of Smt Sandhya Jain is concerned, the certificate of the auditor of Surya Zinc Ltd and the copy of the bank account of the individual showing receipt of money for the sale of shares in the subsequent year have been filed on the requirement of this office. Considering these evidences, the addition made is directed to be deleted.”

(B.4) The present appeal before us has been filed by the assessee against the aforesaid order dated 29.10.2013 of Ld.CIT(A). All The grounds of appeal taken by the appellant in this appeal are being taken up together for the sake of convenience. These grounds have been taken against additions confirmed by the Ld.CIT(A) in the impugned order. In the course of appellate proceedings in ITAT, the assessee filed a Paper Book containing 50 pages which included the following written submissions:-

“The brief facts of the case was that the A.O. has made addition u/s 68 which is confirmed by the CIT(A in part. However, he confirmed the addition on account of that the assessee fails to discharge to prove genuineness of transaction/creditworthiness of the transaction. “During the assessment proceeding, the A.O. has asked to produce Smt. Simran Kaur Sethi and Smt. Harbir Kaur Narula. Both were produced before A.O. on 11.07.2011. The A.O has recorded statement of both the persons and also furnished an Affidavit before A.O. and admitted that they have given loan from sale of agriculture land, the necessary evidence of the sale of the land are furnished by the assessee in the Paper-Book on page no.17 to 36 and 37 to 50. Therefore, the burden lie upon the assessee was discharged.”

(B.5) At the time of hearing before us, Ld. Counsel for the assessee relied on the written submissions and the Paper Book. He also made

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Page 11 of 12 oral submissions wherein he highlighted the written submissions and drew our attention to Paper Book. Ld. Departmental Representative relied on the orders of the Ld.CIT(A) and the AO.

(C) We have heard both sides patiently. We have also perused the materials on record. We find that that Ld.CIT(A) has already allowed partial relief to the assessee by deleting the addition made by the AO in respect of loan claimed to have been received by the assessee from Smt. Sandhya Jain. In respect of the remaining additions confirmed by the Ld.CIT(A), we are of the view that the order of the Ld.CIT(A) is fair and reasonable having regard to the facts and circumstances of the case. The conclusions arrived at by the Ld.CIT(A) that genuineness of the transactions was not proved is a correct one, considering the analysis of facts in paragraph 3.7 of impugned order dated 29.10.2013 of Ld.CIT(A), which has already been reproduced in forgoing paragraph (B.3) of this order. It is settled position in respect of relevant law u/s 68 of I.T.Act that onus is on the assessee to prove not only identity but also creditworthiness of the persons; and further to prove also the genuineness of the transaction. As the genuineness of the transactions is not proved, for which burden of proof was on the assessee, the appellant has failed to make a case to warrant any interference with the impugned order of Ld.CIT(A). The appellant has I.T.A .No.-205/Del/2014 Ashwani Kumar Jain vs ACIT

Page 12 of 12 failed to prove that the impugned order of Ld.CIT(A) is erroneous or unreasonable or unjust in law under facts and circumstances of the case. Therefore, we decline to interfere with the impugned order of Ld.CIT(A) and dismiss all the grounds of appeal. The additions confirmed by Ld.CIT(A) in impugned order are thus hereby sustained.

(D) For statistical purposes, this appeal is dismissed.

Order pronounced in open court on 30.06.2017.