CHANCHAL KUMAR ASH,NORTH 24 PARGANAS vs. D.C.I.T CIR - 50,KOLKATA, KOLKATA

For the Appellant : Shri Anikesh Banerjee, AR Mrs. Saswati Mitra Dutta, Advocate. For the Respondent : Shri R.P. Neogi, Addl. CIT Date of Hearing : 05.04.2018 Date of Pronouncement : 13.04.2018 ORDER Per M.Balaganesh, AM

Chanchal Kumar Ash A.Yr.2007-08 2.1. The brief facts of this issue are that the assessee is an individual running a petrol pump and had filed his return of income for the Asst Year 2007-08 on 31.10.2007 declaring Nil income. The assessee was directed to produce the books of accounts, copies of bank statements and other relevant papers and documents by the ld AO in the assessment proceedings. The ld AO observed that the authorized representative of the assessee appeared from time to time and the case was heard with reference to the papers, documents and submissions furnished by him. The ld AO observed that assessee had derived his income during the year under appeal from retail outlet of Indian Oil Petrol Bunk. He was also having income from other sources. The ld AO observed that the assessee had claimed loss of Rs 19,63,492/- as regular business loss and had set off the same against his petrol bunk business income of Rs 4,18,968/- . The ld AO treated the loss of Rs 19,63,492/- was treated as speculation loss. The assessee did not file any appeal against this action of the ld AO before the ld CITA , though an appeal was preferred in respect of other additions made in the assessment. Hence there was no occasion for the ld CITA to address this issue. The assessee had raised a ground for the first time before us as under:- 1. Under the facts and circumstances of the case the ld. Deputy Commissioner of Income Tax, Circle-50, Kolkata has erred in law as well as in fact in treating loss from derivative transactions amounting to Rs. 19,63,492/- as loss from speculation business and not allowing the setting off of this loss against Business Income and Income From Other Sources.

2.2. We have heard the rival submissions. We find that the ground raised before us involves a mixed question of fact and question of law and it goes into the root of the matter. It is not clear from the records that whether the assessee had made any factual submissions before the ld AO that the loss of Rs 19,63,492/- was incurred out of derivative transactions are not. We are not able to ascertain the same from the paper book filed by the assessee except placing reliance on Form 10DB filed by the ld AR. No doubt, if the said loss is incurred from derivative transactions, the same would not be speculation loss in terms of section 43(5)(d) of the Act. This requires factual 2

Chanchal Kumar Ash A.Yr.2007-08 verification by the ld AO. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of ld AO for denovo adjudication. The assessee is at liberty to furnish necessary documents and evidences in this regard in support of his contentions. The issue regarding the eligibility to set off this loss with other business income and other sources and balance , if any, to be carried forward to subsequent years, shall be decided by the ld AO, pursuant to the decision taken in respect of Ground No. 1 supra. Accordingly the Ground No. 1 raised by the assessee is disposed off accordingly.

3.1. The brief facts of this issue are that the ld AO observed that the assessee had shown an amount of Rs 11,37,227/- as ‘Unsecured Loans’ in his Balance Sheet being the amounts received during the year. The assessee filed the list of the loan creditors numbering to 61 persons from whom amounts were received in the total of Rs 11,37,227/- during the year. The ld AO observed that on perusal of the said list, the minimum amount of loan was Rs 16,227/- and maximum amount was Rs 19,500/-. The assessee had received Rs 18,500/- each from 17 loan creditors, Rs 18,000/- each from 11 loan creditors, Rs 19,000/- each from 16 loan creditors and Rs 19,500/- each from 13 loan creditors and Rs 17,000/- each from 3 loan creditors and a sum of Rs 16,227/- was recorded in the name of Shri Nirmal Sarkar. The assessee furnished the loan confirmation from all the 61 loan creditors in the same type of statement of accounts printed from the same place. In order to verify the genuineness of loan, summons u/s 131 of the Act were issued by the ld AO to 40 of them at random basis. In response to the said notices, the following persons appeared before the ld AO :-

Chanchal Kumar Ash A.Yr.2007-08 3.2. The ld AO recorded statements from aforesaid persons and found that none of the so-called loan creditors were having sound financial ability to afford the loan to a Petrol Pump Owner (i.e the assessee herein) since they were found to be a daily wage earner having income during the financial year for Rs 50/- to Rs 60/- per day as a daily wage earner. The ld AO also observed that even some of those persons used to work under the assessee as a daily paid worker during the period. The ld AO reproduced the relevant portion of the statements recorded from those persons to justify his conclusion drawn above. The ld AO concluded that the persons who appeared before him had an annual income ranging from Rs 21,900/- to Rs 43,800/- even if they have worked for 365 days in the year, except Sri Salil Biswas who claimed to have earned Rs 90,000/- in financial year 2006-07 from fishing and agriculture though he could not produce any evidence as to his source of income.

3.3. The ld AO further observed that one Shri Nirmal Sarkar is stated to have paid the assessee a sum of Rs 16,227/- as loan. He observed that the figure of loan itself is doubtful. The ld AO issued summons u/s 131 of the Act to him on 4.11.2009 but the party did not turn up. The authorized representative of the assessee was directed to Chanchal Kumar Ash A.Yr.2007-08 produce the said party on 30.11.2009 vide order sheet noting dated 23.11.2009, which remained uncomplied. With regard to the absence of 32 persons ( difference between 40 persons to whom summons were issued and 8 persons who appeared before the ld AO) , the assessee submitted vide his letter dated 16.12.2009 that as those are casual manual workers like cultivation of land, fishing, farming and other workers in the village area, they should be given adequate time to make their deposition. The ld AO observed that this submission of the assessee makes it clear that the persons are casual daily manual workers who do not have their financial stability and also it is obvious that the assessee does not want to present them before the department by taking a plea which cannot be accepted in view of the fact that the assessee knows it very well that his case is getting time barred by limitation by the end of the calendar year. Accordingly, the assessee was show caused as to why the sum of Rs 11,37,227/- representing loans should not be treated as amounts received from bogus parties and taxed u/s 68 of the Act. In response the assessee submitted that as per list provided of 61 loan creditors, 21 persons were checked personally by the ld AO on 9.11.2009 who were personally present before the ld AO. It was further submitted by the assessee that: “In this connection it is humble submission that all the said persons depends for their earnings as casual manual workers like cultivation of land, fishing, farming and other works in the village area moreover it is now high time of harvesting of crops and most of them are engaged in such works. They all are being very innocent having no such profoud education background but honest and sentimental native people.

Under the circumstances your humble petitioner earnestly requests to consider the fact in the matter of aforesaid nature / character of the summoned persons in my case during hearing and in no way consider their absence if any absconding to face the inquiry. I would request earnestly to give them all adequate time to decide my case of proceedings and oblige.”

3.4. The ld AO observed that the submissions of the assessee are not acceptable in view of the fact that the ld AR was initially asked whether he could produce the persons who 5

Chanchal Kumar Ash A.Yr.2007-08 are claimed to have given loan to the assessee, the ld AR brought around 20 persons from whom statements could not be recorded on the same date viz 10.11.2009 (not on 9.11.2009). However, statements of the two persons were recorded on that date and the ld AR was requested subsequently to send 3 persons in a day vide order sheet noting dated 23.11.2009. The ld AO observed that the ld AR was allowed sufficient opportunity to produce the so-called loan creditors but he could produce only 8 of them including the two persons who statement was already recorded on 10.11.2009. The ld AO observed that the creditworthiness of the parties could not be proved beyond doubt as well as the genuineness of the transactions. With regard to the persons who were not summoned or were absent, the ld AO observed that the same ratio would be applied keeping in view the judgment in the case of Durga Prasad More vs CIT reported in 82 ITR 540 (SC) and Sumati Dayal vs CIT reported in 214 ITR 801 (SC) where in it was stated that an evidence have to be judged by applying the test of human probabilities and an inference is to be drawn on the basis of circumstance available on record. Accordingly, the ld AO added the entire loan amount of Rs 11,37,227/- as bogus as unexplained cash credit u/s 68 of the Act.

Chanchal Kumar Ash A.Yr.2007-08 5. The ld CITA observed that no rejoinder to the remand report was filed by the assessee before him. The ld CITA observed that the three main ingredients viz (i) identity of the creditors ; (ii) creditworthiness of the creditors and (iii) genuineness of the transactions were not proved by the assessee in the instant case either during the assessment proceedings or during the remand proceedings despite giving several opportunities. Accordingly, he confirmed the addition made in the sum of Rs 11,37,227/- u/s 68 of the Act.

b) Under the facts and circumstances of the case the ld. Commissioner of Income Tax (Appeals)-XXXII, Kolkata has erred in law as well as in fact in not considering the particulars of information & documents submitted by the assessee with respect to his Unsecured Loan Creditors. c) Under the facts and circumstances of the case the ld. Commissioner of Income Tax(Appeals)-XXXII, Kolkata has erred in law as well as in fact in not considering the recorded statements of the summoned and examined Unsecured Loan Creditors of the assessee.

Chanchal Kumar Ash A.Yr.2007-08 stated that the assessee was suffering from serious illness related to cardiac problem and accordingly could not produce the loan creditors before the ld AO in the remand proceedings. In response to this , the ld DR vehemently relied on the findings of the lower authorities in as much as the creditworthiness of the loan creditors were not proved beyond doubt by the assessee and hence prayed for non-interference of the orders of the lower authorities. We find that all the 61 persons had given loan confirmations before the ld AO confirming the fact of giving loans to the assessee. We find that some of the loan creditors had in fact appeared before the ld AO in response to the summons issued u/s 131 of the Act. The ld AO had not given any credit even for the parties who had appeared before him in response to summons u/s 131 of the Act. The assessee had also stated that more parties could have been produced before the ld AO during remand proceedings but for the sickness of the assessee. In these circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld AO for de novo adjudication to give one more opportunity to the assessee to produce the parties who were not produced earlier before the ld AO. Accordingly, the Ground Nos. 2(a) to 2(c ) raised by the assessee are allowed for statistical purposes.

Order pronounced in the Court on 13.04.2018