ITO, NEW DELHI vs. SH. PRATEEK JAIN, DELHI

"On the facts and in the circumstance of the case, the Ld. CIT(A) had erred in giving a finding that the creditworthiness of creditors stands proved." 4. "On the facts and in the circumstance of the case, the Ld. CIT(A) had erred in not accepting the objections raised by the A.O. in his remand report with regard to additional evidences." 2. The brief facts of the case are that the assessee filed return of income declaring income of Rs.8,80,390/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee is engaged in the business of resale and trading of Magnet & Speakers parts. During the scrutiny proceedings, the Assessing officer noted that total unsecured loans raised during the year from 17 parties were for Rs.1,39,33,349/-. The assessee submitted confirmations of unsecured loans, copy of saving bank accounts and copy of ITR of the parties from whom the unsecured loans were received. The Assessing Officer observed that the onus to satisfy the conditions of section 68, i.e., identity and creditworthiness of the loan creditors and genuineness of the transactions, was on the assessee, which stood not properly discharged. The Assessing Officer required the assessee to prove the creditworthiness of the loan creditors and to furnish the copy of ITA No. 3817/Del./2014 12 cash flow statement of affairs and the balance sheet along with computation of income in respect of parties doing business, but the assessee failed to prove the creditworthiness of the loan creditors. The assessee filed copy of ITRs, copy of bank accounts and confirmation of accounts. The Assessing Officer was not satisfied with the reply of the assessee and added the total unsecured loans amounting to Rs.1,39,33,350/- received from 17 parties. 3. The Assessing Officer further noted that there was a difference in the purchases shown in the trading & profit & loss account and that shown in the VAT return furnished before the Assessing Officer of Rs.1,55,89,129/-. On being asked for furnishing the bills and vouchers relating to purchases to explain the difference, the assessee did not furnish the same. Therefore, the Assessing Officer disallowed the purchases to the extent of the difference of Rs.1,55,89,129/-. During the scrutiny proceedings, the assessee has submitted reply to the Assessing Officer which is at page 214 to 219 of the paper book. Aggrieved by the additions, the assessee carried the matter in appeal before the first appellate authority and also filed written submissions ITA No. 3817/Del./2014 13 which were sent to the Assessing Officer for his comments. In the remand proceedings, the AO further asked the assessee to furnish the copy of ledger accounts of those persons who have given unsecured loans to the assessee and the statements of affairs. The assessee submitted before the AO the requisite documents vide their letter dated 06.04.2014. During the remand proceedings, the Assessing Officer also issued letter dated 27.12.2013 for furnishing certain documents. In response the assessee submitted written reply vide letter dated 03.01.2014 & 06.01.2014. On scrutiny of these replies, the AO noticed that during the assessment proceedings, the assessee was granted ample opportunities, but none of these documents were submitted. He, therefore, made objections for not accepting the evidences submitted before the first appellate authority. The ld. CIT(A) noted that in the remand report, the quantification of unsecured loans from 17 creditors were not mentioned in the assessment order as well as in the remand report whereas the details were given by the Assessee. The AO in the remand proceedings called for additional evidences from the assessee to verify the source of unsecured loans, but later on objected that ITA No. 3817/Del./2014 14 these evidences were not produced in the assessment proceedings. However, the ld. AR of the assessee submitted that there was no any additional evidence filed before the first appellate authority. The additional evidences were filed only on the request of Assessing Officer in the remand proceedings. He further submitted that there was no violation of Rule 46A of the IT Rules, 1962. After considering the written submissions, remand reports and rejoinder, the ld. CIT(A) allowed the appeal of the assessee vide impugned order. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before the Tribunal.

The learned DR vehemently objected the order passed by the ld. CIT(A) without considering the objections raised by the Assessing Officer in the remand report as well as on the additional evidences submitted by the assessee before the ld. CIT(A). During the assessment proceedings, the assessee was given ample opportunity for proving the creditworthiness of the loan creditors, but he failed to satisfy the same as contemplated u/s. 68 of the Act. Mere filing of confirmations, bank statements and acknowledgements of returns does not satisfy the conditions as laid down u/s.

Even during the remand proceedings, the ITA No. 3817/Del./2014 15 creditworthiness of the lenders was not proved. The assessee has submitted bank statement, in which opening balance was not appearing. In respect of difference in purchases of Rs.1,55,89,129/-, the bills and vouchers were not produced before the Assessing Officer despite ample opportunity was given to the assessee and the ld. CIT(A) has accepted the additional evidences against Rule 46A of the IT Rules on both the issues. Therefore, the order of the ld. CIT(A) may be set aside.

On the other hand, the ld. AR of the assessee submitted that the ld. CIT(A) has made a good order which needs no interference. No new evidences were submitted before the ld. CIT(A). He drew our attention on page No. 213 to 219 of the paper book, in which he complied with the requirements of the Assessing Officer during the assessment proceedings and during the remand proceedings, the requisite documents were submitted as required by the Assessing Officer. He further submitted that all the transactions were made through account payee cheques and purchase bills were produced during the remand proceedings, which have been verified by the Assessing Officer. During the scrutiny proceedings, the confirmations of ITA No. 3817/Del./2014 16 accounts, copy of ITRs and bank statements were produced before the Assessing Officer, but he did not doubt the same. Therefore, the ld. CIT(A) is justified in deleting the additions made by the Assessing Officer on both the issues.

After hearing the submissions of both the sides and going through the entire material available on record, we observe from the assessment order that the assessee had taken loan from 17 parties as mentioned by the Assessing Officer, however, lender- wise quantum of loans taken is not mentioned by the Assessing Officer in order to verify their creditworthiness. The ld. CIT(A) though commented on this lapse of the AO, but he also did not mention as to how much amount of loan was advanced by each of the loan creditors. The Assessing Officer has asked the assessee to prove the creditworthiness of the lenders by filing the cash flow, state of affairs, balance sheet and computation of income in respect of the parties doing business, but the assessee did not comply with the same at the stage of assessment proceedings as well as appellate proceedings. Therefore, the creditworthiness of the lenders remained unverified. A perusal of the record further shows that there was contradiction between ITA No. 3817/Del./2014 17