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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Assessee by : Sh. SS Rana, CIT DR Revenue by: Sh. Sachin Jain, CA Date of Hearing 08/11/2016 Date of pronouncement 31/01/2017 O R D E R PER PRASHANT MAHARISHI, A. M. This is an appeal filed by the revenue against the order of the ld CIT(A)-I, 1. New Delhi dated 09.04.2012 for the Assessment Year 2007-08 and in this appeal assessee has filed cross objection. The revenue has raised the following grounds of appeal:- 2. “1. The order of ld CIT(A) is not correct in law and on facts.
2. On the facts and in the circumstances of the case, the ld CIT(A) has erred in law as well as facts in deleting the addition of Rs. 14200000/- made by the assessing officer u/s 68 of Act 1961 in respect of unsecured loans and advances as the assessee failed to prove the credit worthiness of the lender and genuineness of transaction.
3. On the facts and in the circumstances of the case, the ld CIT(A) has erred in law as well as facts in deleting the disallowance of interest of Rs. 1372277/- made by the Assessing Officer as the advances given by the assessee was utilized for non business purpose.
Page 2 of 7 4. The order of ld CIT(A) is perverse in law and facts. 3. The assessee has raised the following grounds of appeal:- “1. That the assessment order is liable to be quashed since the same has been passed without recording the satisfaction u/s 153C of the Income Tax Act, 1961 by the ld AO.
2. That the assessment order passed by the ld AO is invalid and deserves to be quashed since the same has not been signed in manuscript as required u/s 282 of the Income Tax Act, 1961.
3. That the assessment order passed u/s 153C of the Act is liable to be quashed since the same has been passed by the ld AO on ad hoc basis. No incriminating documents in respect of assessee found from the possession of persons covered u/s 153A of the Act for the year under consideration.”
4. We first take up the appeal fo the revenue where effectively ground No. 2 against the deletion of addition of Rs. 1.42 crores made by the AO u/s 68 by ld CIT(A).
5. The ground No. 1 and 4 of the appeal of the revenue are general in nature and therefore they are dismissed.
6. The brief facts of the case is that the assessee is an individual who filed original return of income on 31.10.21011 and subsequently, search u/s 132 of the Income Tax Act on 19.02.2009 on Koutons Group wherein a MOU relating to transaction of sale and purchase of shares in SR Resource Pvt ltd were seized and in the seller along with three others name of the assessee appeared. Therefore, notice u/s 153C was issued on 25.02.2010. in response to that the assessee requested to consider the original return of income as return filed in compliance with that notice. Based on that an assessment was framed on 29.12.2010 determining total taxable income of Rs. 16041427/- against the return income of Rs. 469150/-. The two additions were made in the assessment (i) Rs. 1.42 cores on account of unsecured loan and (ii) Rs. 1372277/- on account of disallowance of interest. The assessee being aggrieved by the order preferred an appeal before the ld CIT(A), who deleted the addition.
7. The ld AR submitted that the assessee has submitted the confirmation of sums received from M/s. Manikaran Buildcon Pvt. Ltd of Rs. 1.15 crores and a sum of Rs. 20 lakhs and Rs. 7 lakhs from M/s. Tonami Trading Co. and Mr. Amarjit Singh. The complete confirmation letters, copy of the Page 3 of 7 ITR and bank statement for the relevant period were submitted before the ld CIT(A) and therefore, the addition was deleted. With respect to the disallowance interest he further submitted that the funds were taken by the assessee were tied up in debtors and stock. He relied upon the finding given by the ld CIT(A). He further submitted that in the present case both the additions were made on account of material which was not found during the course of search and therefore as such the additions cannot be made.
The ld DR relied upon the order of the ld Assessing Officer.
We have carefully considered the rival contentions. The ld CIT(A) has deleted the addition with respect to Rs. 1.15 cores received from M/s. Manikaran Buildwell Pvt. Ltd whose confirmation were filed by the assessee along with copy of the return of income and bank statement. With respect to Rs. 20 lakhs received from M/s. Omani Trading Co. the assessee has furnished confirmation, copy of the bank statement along with permanent account no and for the purpose of Rs. 7 lakhs received from Mr. Amarjit Singh identical details were furnished before the ld CIT(A). On that basis the addition was deleted. The ld first appellate authority deleted the above addition holding as under:- “5. DETERMINATION:- I have examined the assessment order and the submissions given by the appellant and it is held as under: - 5.1 Undisclosed Income u/s 68 of the I.T Act, 1961 5.1.1. The addition made by the AO is on the basis that no information was filed by the appellant during the course of the assessment proceedings, whereas the appellant has categorically mentioned that the details were provided at the time of the assessment proceedings The examination of the assessment records reveals that the confirmation of M/s Manikaran Buildwell (P) Ltd is available on record. A substantial addition was made u/s 68 of the Act, 1961, by brushing aside the confirmations filed during the course of assessment proceedings. Before me vide letter dated 06-01-2012, the appellant filed copy of confirmations stated to be already filed during course of assessment proceeding and prayed for admission of additional evidence under rule 46A of the I. Tax Rules, 1962. The confirmation letters with PAN and the jurisdiction of assessment. Copy of the ITR for the A/Y:2007-08,Bank Statement for the relevant period, Copy of the PAN card etc. in case of M/s. Manikaran Buildwefl Pvt. Ltd .
Page 4 of 7 MrAmrjeet Singh and M/s. Tonami Trading Co. for Rs.11500000/- , Rs.700000/- and Rs.2000000/- respectively were attached with the above letter. Though this was not a evidence given for the first time but as requested the said additional evidence was given to the A.O for his examination and comment vide this office letter dated 11/12-01-2012. In his first reply dt. 11-1-2012 the AO stated that "nowhere in the assessment order it is mentioned that no documentary evidence was filed in respect of persons mentioned in the letter dt 06/01/2011 When it was pointed out with reference to the assessment order he mentioned in his letter dated 12.1.2012 that the assessee filed only copy of account of M/s. Manikaran Buildwell (P) Ltd but no other supporting documents filed. A perusal of the reply of the A.O reveals that he has not given negative finding on the evidence adduced by the appellant. He stated that the furnishing of primary documents is not denied but the appellant did not give supporting document during the course of assessment proceedings. 5.1 2 For deciding the instant issue it is essential in the interest of justice to consider the evidences-produced and mentioned above. The AO has not raised any objections on the identity creditworthiness of the lender and genuiness of the transaction nor he has any observation or negative finding that the, documents adduced by the appellant are incorrect or contrary to the facts of the case . I have gone through the documents filed by the appellant and the submissions of the appellant. The addition made by the AO on the basis of non production of documents, whereas the confirmations were filed, identity proved and all the transactions were through the banking channel. I have found that one of the confirmations as mentioned above is also available on assessment record of the AO. The creditworthiness and genuineness of the transaction with the lenders were not doubted. I am of the considered opinion that the appellant has discharged his onus and proved with documents, the Identity. Creditworthiness and genuineness of the transactions with the lenders The A O is not justified in making the addition of Rs 1,42.00,000/- u/s 68 of the Act, 1961 as discuss supra hence addition is deleted. Thus, this ground of appeal is allowed.
10. The ld DR could not point out any infirmity in the order of the ld CIT(A), therefore in view of this we confirm the finding of the ld CIT(A) in deleting the addition u/s 68 of Rs. 1.42 crores after obtaining the proper details which proves the identity, creditworthiness and genuineness of the transactions. In the result ground No. 2 of the appeal of the revenue is dismissed.
11. Ground No. 3 of the appeal of the revenue is against deleting the disallowance of interest expenditure of Rs. 1372277/-. It was found by Page 5 of 7 the ld Assessing Officer that assessee has paid interest of Rs. 2744557/- and have made advance to different individual of Rs. 40022398/-. Therefore, he disallowed the proportionate interest equivalent to 50% u/s 36(1)(iii) of the Act. The ld CIT(A) deleted the addition holding that the total advance received during the year of Rs. 40323252/- which is far more in excess of advance of Rs. 40022398/-. Therefore, revenue is in appeal before us.
12. The ld DR relied upon the order of the ld Assessing Officer whereas the ld AR relied upon the order of the ld CIT(A).
We have carefully considered the rival contentions. Firstly, the ld Assessing Officer has diallowed 50% of interest expenditure without proving any nexus between advances given without interest and further the total advance received during the year without interest of Rs. 40323252/- was ignored by him. The first appellate authority has considered the above arugment and has dealt with this issue as under:- 5.2 Disallowance of Claim of Interest -: 5.2.1. I have considered the submissions and the argument of the counsel of the appellant. The view taken by the A.O. is that the borrowed funds were of Rs.19397329/- whereas the advance were amounting to Rs.40022398/-, so a significant amount was utilized for the non business purpose and on that basis the A.O. disallowed 50% of the claim of the interest. This is not a sufficient material to make the disallowance without considering other factors The appellant has categorically mention that the A.O. has not questioned the genuineness of the audited balance sheet as on 31-3-2007 and the funds induced by the appellant as advance from customers and unsecured loans. 5.2.2. On examination of the ledger account and the bank statement it appears that there was a direct nexus with the payment given as advance and its source Further the said source was out of the advance received from customers and the unsecured loans raised during the year The A.O has not established that the borrowed funds were not utilized for business purpose nor he brought on record any finding contrary to the submission of the Appellant. It is the duty and onus is on the AO and the same cannot be discharged, merely by doubts. Further, the submission of the appellant has a reasonable case that the borrowed funds were provided by the bank to the exporter as PCL and FOUBC limits to execute the export orders and bank provide the said limit against the book debts and stocks If the view of the A.O. is to be accepted then there should not be any stock or debtors but as apparent from the audited balance sheet Page 6 of 7 there was in reality a stock of Rs.24039318/- and debtors of Rs.11751028/-. 5.2.3 The A.O. has taken the view that the appellant has not utilized the borrowed funds for the purpose of the business and the advance given was more than the borrowed funds This cannot be a justified basis for disallowance of the interest claim in the light of the fresh advance received from the customers and the fresh unsecured loans. The total advance received and unsecured loans of Rs.40323252/- in itself is sufficient evidence to established that the complete advance given of Rs. 40022398/- was financed through such advance and unsecured loan Accordingly the contentions and the submission of the counsel of appellant has strong a acceptance If the borrowed funds are used by the appellant for giving advances then how it be possible to maintain the current ratio of stock and debtors In that case there would be no stock or debtors but as apparent from the auditar balance sheet the stock and debtor are there for Rs.35790346/-. The A.O. has not considered the advance from customer and unsecured loan received by the appellant during the year which financed the source of the advances given. 5 2.4 From the above observations the disallowance of the interest by the A.O. was against the facts and without cogent reasons and evidences. Hence the disallowance by A.O. cannot be sustained hence deleted and in result, this ground of appeal is allowed.”