ITO, NEW DELHI vs. MR. JOGINDER PAL SINGH, NEW DELHI

This appeal has been preferred by the Department against order dated 31/01/2014 passed by the Ld. Commissioner of Income Tax (Appeals) – IX, New Delhi and pertains to assessment year 2009-2010.

Notices under section 133 (6) of the Act were issued to these parties which, as per the AO, were either received back or went un-complied with. On being confronted with this fact, the assessee filed confirmations of some of the parties along with Assessment year 2009-10 acknowledgements of their ITRs. The AO observed that the onus was on the assessee to prove the identity of the creditors, the capacity of the creditors to advance money and the genuineness of the transactions. The AO also observed that in case of two companies namely Sam Buildwell and Seagull Buildwell Private Limited, on an enquiry by the Income Tax Inspector, it was found that no such companies existed at the addresses furnished by the assessee. The AO held that the assessee had failed to discharge his onus to establish the creditworthiness of the parties and the genuineness of the transactions. The impugned amount was treated as unexplained credit under section 68 of the Act and added to the income of the assessee as income from undisclosed sources.

2.1 Aggrieved, the assessee preferred an appeal before the Ld. CIT (Appeals) wherein the Ld. CIT (Appeals) reduced the notional rent to Rs. 12,000 per month instead of Rs. 22,000 per month as considered by the AO. On the issue of addition under section 68 of the Act, the Ld. CIT (Appeals) accepted the assessee’s arguments and deleted the entire addition.

Assessment year 2009-10 2.2 Aggrieved the Department has now approached the ITAT and has raised the following grounds of appeal – “1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) erred in directing the A.O. to levy a notional rent of Rs. 12,000/- per month against the notional monthly rent of Rs.22,000/- per month adopted by the A.O.

2. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) is arbitrary and unreasonable as the A.O. had adopted the notional rent after conducting exhaustive inquiries whereas the decision of CIT (A) is not basis on any inquiry.

4. That the order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law.

5. That the grounds of appeal

are without prejudice to each other.

6. That the appellant craves leave to add, alter, amend or forgo any grounds(s) of appeal either before or at the time of hearing of the appeal.”

3. On the issue of reducing the fair rental value from Rs. 22,000/- to Rs. 12,000/- by the Ld. CIT (Appeals), the Ld. Departmental Representative submitted that the Ld. CIT Assessment year 2009-10 (Appeals) had not given any basis for reducing the fair rental value. It was submitted that the appraisal and the approach of the AO was very reasonable and it was vehemently argued that the same should be restored. It was also submitted that the assessee had not preferred any appeal against the order of the AO in respect of the fair rental value and as such it underlined the correctness of approach of the AO.

3.1 On the issue of deletion of addition made under section 68 of the Act, the Ld. Departmental Representative submitted that the primary onus rested on the assessee but the same was not discharged by the assessee. It was further submitted that the notices issued under section 133 (6) of the Act were either returned un-served or were not complied with. It was also submitted that the AO had made adequate enquiries before making the addition and the Ld. CIT (Appeals) had erred in ignoring the findings of the AO in this regard. It was submitted that the addition on this account should also be restored.

4.1 On the issue of addition under section 68 of the Income Tax Act, the Ld. Authorised Representative submitted that the allegation of the AO that the notices under section 133 (6) were not complied with was incorrect as the notices were duly complied with, not once but twice, on 14/12/2011 and 24/12/2012 respectively. On the allegation of the AO that the confirmations were either not complete or were identically worded, the Ld. AR submitted that the confirmations were duly signed and the permanent account numbers were duly mentioned. It was submitted that the confirmations were Assessment year 2009-10 identically worded because the same professional was engaged.

On the observation of the AO that it was unbelievable that so many persons had given interest free loans, it was submitted that it was a matter of agreement between two parties and the AO cannot step into the shoes of the businessman to decide whether a loan has to be given or not. The Ld. AR also refuted the allegation of the AO that only sketchy details were filed and submitted that all relevant details were filed which included PAN, confirmations, copies of ITRs acknowledgements, bank statements, copies of intimations under section 143 (1) and audited financial statements. On the issue of two companies having not been found by the inspector at the given Iddress, the learned authorised representative submitted that the inspector’s report was not admissible as it was a self serving document. The Ld. Authorised Representative also relied on the order of the Ld. CIT (Appeals) and submitted that in view of the detailed findings contained in the impugned order the deletion be upheld.

The Ld. CIT (Appeals) proceeded to adopt a notional rent of Rs. 12,000/- per month instead of Rs. 22,000/- per month as adopted by the AO. In our considered opinion, the AO was patently wrong in adopting a figure of notional fair rental value without confronting the assessee with the same and as such the entire addition is liable to be deleted. However, since the assessee has not challenged the action of the Ld. CIT (Appeals) in upholding the computation of notional rent to the extent of Rs. 12,000/- per month, we cannot grant any further relief to the assessee but deem it fit to dismiss ground numbers 1 and 2 of Assessment year 2009-10 the Department’s appeal. These grounds, accordingly, stand dismissed.

5.1 As far as the issue of deletion of addition under section 68 of the Act is concerned, it is seen that the Ld. CIT (Appeals) has observed in Para 6.3 of the impugned order that the records available indicate that the findings of the AO were self- contradictory. The Ld. CIT (Appeals) has observed that the AO has mentioned that the notices under section 133 (6) were not served on the creditors due to non-availability of any person and on the other hand, letter dated 28/08/2013 issued by the AO to the Principal Officer of M/s Colour Buildwell Private Limited was served on the same address by the Postal Department. The Ld. CIT (Appeals) has further observed that the report of the Inspector regarding visit to the addresses does not carry any evidence of presence of independent witness and that the simple letter given by the inspector was of self-serving nature. The Ld. CIT (Appeals) has further held that no proper procedure was followed in verification of the addresses and also that the presence of and the identity of the creditors could not be denied just because of some similarities in the format in writing style of Assessment year 2009-10 the confirmation letter. The Ld. CIT (Appeals) also observed that from the relevant records it was evident that M/s Sanjay Plastics is a proprietorship concern of Mr Sanjay Sahani, M/s Katyayni Construction is a partnership firm of Sh. Sanjay Sahani and Smt.

Vindo Sahani, M/s Seagull Buildewell Private Limited and Sam Buildwell Private Limited were companies and all of them were taxable entities. The Ld. CIT (Appeals) observed that in all the cases the assessee had submitted all possible evidences and there was no evidence on record which may prove that assessee had given cash for receiving advances. The Ld. CIT (Appeals) has further observed that the assessee had duly discharged his burden of proof which a person of ordinary prudence would discharge under section 68 of the Act and that once the assessee has discharged his primary onus, the burden shifts to the AO to prove that the transaction of advance was not genuine. The Ld. CIT (Appeals) has relied on the judgement of the Hon’ble Delhi High Court in the case of CIT versus Value Capital Services Ltd. reported in 307 ITR 334 for the proposition that the burden was on the AO to show that the money received originated from the coffers of the assessee company. The Ld. CIT (Appeals) has further observed that the AO has not specifically brought any Assessment year 2009-10 evidence to contrary to show that the transaction was not genuine and that the circumstantial probability discussed in the assessment order was not sufficient to contradict the transaction through banking channel. The Ld. CIT (Appeals) also relied on the judgement of the Hon’ble Delhi High Court in the case of CIT versus Divine Leasing and Finance Ltd reported in 299 ITR 268 for the proposition that the burden of proof can seldom be discharged to the hilt by the assessee and if the AO harbours doubt of legitimacy to any subscription, he is empowered to carry out thorough investigations but if the AO fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.

5.2 These findings of fact as recorded by the Ld. CIT (Appeals), though challenged by the Department, could not be negated by the arguments of the Ld. Departmental Representative. In the course of arguments before us, the Department could not point out any factual contradiction in the findings of fact as recorded by the Ld. CIT (Appeals). No further evidence was forthcoming to buttress the Department’s stand that the Ld. CIT (Appeals) was Assessment year 2009-10 erroneous in recording his findings and that the conclusions as reached by him were patently wrong. Therefore, we find no reason to interfere with the findings of the Ld. CIT (Appeals) on this issue and we, accordingly, uphold the findings of the Ld. CIT (Appeals) and the consequential deletion of the addition made under section 68 of the Act. Thus, ground No. 3 of the Department’s appeal stands dismissed.

Order pronounced in the open court on 11th April, 2017.