M/S. JAY PRAKASH GANERIWALA,RANIGANJ vs. ITO, WARD-3(1), ASANSOL, ASANSOL

This is an appeal filed by the assessee against the order of Ld. CIT(A), Asansol dated 17.09.2014 for AY 2008-09.

The main issue that has been raised by the assessee is against the action of the Ld. CIT(A) in confirming the addition on account of unsecured loans amounting to Rs.7,50,000/- u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) by the AO.

Brief facts of the case are that during scrutiny assessment, the AO noted that the assessee has taken unsecured loans of Rs.2,50,000/- from Jay Prakash Samir Kumar (HUF), Rs. 3,00,000/- from M/s. Biswanath & Sons, Rs.1,00,000/- from Jai Prakash Sharma and Rs.1,00,000/- from Smt. Sunita Sharma. The AO asked the assessee to prove the identity, creditworthiness and genuineness of the loan transactions. The assessee filed loan confirmation account and copy of IT returns along with Balance Sheet and P&L Account of the creditors/lenders of the loan. The assessee also filed the following documents to prove the identity, creditworthiness and genuineness of the transactions:

The aforesaid documents has been filed before us with the certificate that the aforesaid documents were in fact produced before the AO/CIT(A) and that there was no fresh evidence that has been adduced for the first time in the paper book filed before us. The main grievance of the assessee is that though the aforesaid documents were filed, the AO found certain discrepancy in the creditworthiness of all the lenders to lend the loan to assessee and in fact these were assessee’s own money which has been routed through these purported lenders. The AO noted that the respective amounts lend to assessee were deposited by the lenders few days before the cheque was issued to the assessee. According to assessee, though cash books of the respective lenders were filed before the AO, he did not 3 Jay Prakash Ganeriwala, AYs- 2008-09 believe that these lenders had the capacity to earn the amount lend to the assessee and he made addition u/s. 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who confirmed the order of the AO. Aggrieved, the assessee is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had shown Rs.7,50,000/- as unsecured loan from four lenders and we note that out of Rs.7,50,000/- Jay Prakash Sharma, HUF was the proprietor of M/S. D. K. Transport and has given a loan of Rs.2,50,000/- to the assessee. The HUF has filed confirmation of loan given to assessee which is placed at page 1 of the paper book. From pages 2 to 5 is a bank statement of Jay Prakash Samir Kumar, HUF from which it is evident that the amount was disbursed through banking channel on 20.03.2008 (page 4 of the paper book). Page 6 of the paper book which is the cash book of the Jay Prakash Samir Kumar, HUF indicates that it had an opening balance from 01.04.2007 of Rs.55,424.50 and on 17.03.2008 it had Rs.2,50,000/- which was deposited in the Syndicate Bank. Page 8 of the paper book is the I. T. Return filed by the Jay Prakash Samir Kumar, HUF which reveals that the total taxes paid is Rs.22,585/- and refund comes to Rs.14,157/-. Page 9 of the paper book is P&L Account and Balance Sheet as on 31.03.2008 which reveals that the HUF has given loan to the assessee to the tune of Rs.2,65,000/- and for another to Rs.15,000/- each. The P&L Account reveals that net profit transferred to capital account as on 31.03.2008 is Rs.1,78,998/- and the profit from M/S. D. K. Transport was to the tune of Rs.2,10,497/-. The Balance Sheet of the proprietor of the HUF i.e. M/s. D. K. Transport reveals that it had a capital of Rs.9,13,834/- as on 31.03.2008 and sundry creditor of Rs.4,85,750/-. It had a sundry debtor of Rs.10,77,087/- and its P&L Account shows that transport charges received for the year is Rs.11,63,438/- and the transport charges paid by M/S. . D. K. Transport is Rs.9,46,500/- and the net profit is Rs.2,10,497/-. Page no. 12 to 20 is the cash book of the proprietorship of HUF. Page 12 of the cash book reveals an opening balance of Rs.6,49,028/- and on 01.04.2007 it received a sum of Rs.34,000/- and in that month M/S. . D. K. Transport has paid transport charges and salary expenses to the tune of Rs.41,100/-. Thus, on 01.03.2008 it had an opening balance of Rs.2,77,761/- and from that amount on 17.03.2008 made a payment of Rs.2,50,000/- on 17.03.2008. Thus, the HUF proprietary concern had enough cash i.e. Rs.2,50,000/- which was deposited in its Syndicate Bank account and was transferred to the assessee on 20.03.2008. Page 21 is the certificate of 4 Jay Prakash Ganeriwala, AYs- 2008-09 enlistment by the Raniganj Municipality in respect to the proprietary concern D.K. Transport, Prop. Jay Prakash Samir Kumar (HUF) in respect to its transporting office. Page 22 is a letter from Eastern Coalfields Ltd. to M/s. D. K. Transport dated 29.02.2008 giving contract work for transportation of material from its factory. Page 23 is the confirmatory work order dated 13.03.2008. Likewise, work orders are being seen from pages 24 to 26 (sample) found to have been placed. Pages 27 to 39 of the paper book reveal the copy of the earlier income tax return and Balance sheet of loan creditor for last three years to prove the credibility, which documents have not been found to be bogus/in genuine. The AO has doubted the cash deposited in the HUF’s bank account few days before it issued the cheque to the assessee without taking credence to the cash book and though the cash book was before him he did not find any factual error. However, AO merely on suspicion and conjecture simply held that lender has no capacity to lend the aforesaid amount to assessee. It should be remembered that suspicion howsoever strong cannot take the place of evidence. Here, it is true that the HUF has deposited Rs.2,50,000/- few days before it issued cheque to the assessee, this fact may raise a doubt/suspicion however, when lender HUF had filed the aforesaid documents to prove the identity and it had filed the cash book to show that it had enough cash in its hand on 17.03.2008, the AO should not have brushed aside the evidence brought before him and simply on surmises and conjectures and on the basis of suspicion cannot make the addition u/s. 68 of the Act. By filing the aforesaid document HUF has discharged its burden of proof and once the aforesaid documents have been filed the onus shifted to the AO and without controverting or finding any fault in the same, AO could not have made the addition. In this case the AO failed to discredit the documents filed before him and, therefore, accordingly lender, HUF has proved the identity, genuineness and creditworthiness of Rs.2,50,000/- lend to the assessee.

In respect of M/s. Biswanath & Sons, it had lended Rs.3,00,000/- to the assessee. We note that M/s. Biswanath & sons , proprietor is Jai Prakash Sharma, HUF. We note that in the remand report placed at page 73 of the paper book, the AO notes that during the assessment proceedings, the assessee did not file statement of ICICI bank account of the said proprietary concern M/s. Biswanath & Sons. From the documents i.e. confirmation of accounts filed it reveals that M/s. Biswanath & Sons has given loan of Rs.3,00,000/- on 25.03.2008 to the assessee. It has also filed the I. T. return. M/s. Biswanath & Sons had 5 Jay Prakash Ganeriwala, AYs- 2008-09 filed the cash book before the AO and the ICICI bank statement which are placed at pages 40 to 47 of the paper book. Page 41 of the paper book reveals that the lender has confirmed the loan of Rs. 3,00,000/- given to the assessee. Page 42 of the paper book is a certificate of registration by the West Bengal Value Added Tax (VAT) form no. 3 which shows that Jay Prakash Sharma, HUF is the proprietor of M/s. Biswanath & Sons. Page 43 of the paper book is the bank statement from which it reveals that on 25.03.2008 an amount of Rs. 3,00,000/- was transferred to assessee. Page 44 of the paper book reveals the cash flow statement from 24.03.2008 to 31.03.2008. As per the said statement on 24.03.2008 M/s. Biswanath & Sons had an opening balance of Rs.1,82,768/- and it had a closing balance of Rs.2,63,323/- and on that day it received Rs.85,554/-. On 25.03.2008 it had received Rs.4,128/-, Rs.9,506/- and Rs.63,171/- thus making a total of Rs.3,13,129/- from which cash of Rs. 3,00,000/- was deposited in the ICICI Bank. On 26.03.2008 it had a cash closing balance of Rs.34,167/-, on 28.03.2008 it had a closing balance of Rs.43,482/-, on 30.03.2008 it had a closing balance of Rs.56,883/-, on 30.03,2008 it had a closing balance of Rs.76,642/- and on 31.03.2008 it had a closing balance of Rs.83,570/-. From the cash flow statement as aforesaid, we note that M/s. Biswanath & Sons had enough cash in hand to be deposited in ICICI bank account i.e. Rs. 3 lacs and it was lended to the assessee.

We note that in respect of M/s. Jay Prakash Sharma, HUF, IT returns have been filed in page 48 and its Balance Sheet from earlier years is found at page 49 and from a perusal of the Balance Sheet we note that it had a capital in its capital account to the tune of Rs.11,43,102/-, from which withdrawal of capital at Rs.3,30,000/- is seen and cash withdrawal for expenses at Rs.24,000/- as on 31.03.2007 is noted. By filing the aforesaid documents M/s. Biswanath & Sons has proved its identity, creditworthiness and genuineness. However, the AO despite having all these documents before him has doubted the creditworthiness of the proprietary concern of the HUF. The proprietary concern M/s. Biswanath & Sons has discharged its burden of proof by providing the aforesaid documents before the AO. However, the AO has not found any defect or could not find any material to discredit the same. So the veracity of the documents produced by the assessee before the AO has to be believed and so cannot be brushed aside. However, the AO based his decision on suspicion and without controverting any of the materials that was placed before it, on surmises and conjectures has disbelieved the creditworthiness of the proprietary concern, 6 Jay Prakash Ganeriwala, AYs- 2008-09 which cannot be accepted and therefore, according to us, M/s. Biswanath & Sons, proprietor M/s. Jay Prakash Sharma, HUF has been able to discharge its burden casted on it to prove the identity, creditworthiness and genuineness of Rs. 3,00,000/- lend to assessee.

Coming to Shri Jay Prakash Sharma, individual who has given Rs.1,00,000/-, we note from a perusal of page 51 of the paper book is the copy of PAN of shri Jay Prakash Sharma and page 52 of the paper book is confirmation of accounts of giving loan on 26.03.2008 to Shri Jay Prakash Sharma from the transaction reflected in bank statement of Union Bank of India, Raniganj from which it reveals that on 26.03.2008 payment of Rs.1,00,000/- was made to the assessee. Page 54 of the paper book is the I. T. return of Shri Jay Prakash Sharma, page 55 of the paper book is the P&L Account from where it reveals that he had Rs.1,77,144/- net profit. Page 56 of the paper book, which is Balance sheet from which it reveals that in capital account he had Rs.13,85,488/- and page 57 of the Balance Sheet reflects that he has given loan to the assessee. From page 58 to 60 of the paper book which is the cash flow statement from 01.03.2008 to 31.03.2008 from which it reveals that as on 01.03.2008 cash opening balance of Rs.8,589/-. On 24.03.2008 he has cash of Rs.58,689/- and on 25.03.2008 we note that an amount of Rs.19,000/- + Rs.75,000/- + Rs.4,800/- + Rs.9,600/- + Rs.12,000/- was received by Shri Jay Prakash Sharma which makes total amount of Rs.1,11,589/- from which an amount of Rs.1,04,000/- was deposited in the Union Bank of India and cheque was issued on 26.03.2008, therefore, it shows that Shri Jay Prakash Sharma, the lender had enough cash in hand from which he deposited Rs.1,04,000/- to the Union Bank of India from where the amount was lend to the assessee. By filing the aforesaid documents, the lender Shri Jay Prakash Sharma has discharged his burden of proof to prove the identity, creditworthiness and genuineness of the transaction with assessee. However, the AO has doubted the creditworthiness on surmises and conjectures, therefore, we find that Shri Jay Prakash Sharma has lend the aforesaid amount to the assessee and has discharged the burden of proof casted on him and AO erred in making the addition.

Coming to Smt. Sunita Sharma, who had lent to assessee Rs. 1,00,000/-, a perusal of page 67 of the paper book, which is a bank statement reveals that on 26.03.2008 an amount of Rs. 1,00,000/- was transferred to the assessee. Page 68 of the paper book reveals the Income Tax Return of Smt. Sunita Sharma and page 69 is the Balance Sheet as on 7 Jay Prakash Ganeriwala, AYs- 2008-09 31.03.2008 from which it reveals that she had capital account of Rs.18,38,273/- and after drawing as on 31.03.2008 had Rs.13,09,523/-. Based on the aforesaid documents and perusal of the remand report of the AO, we are of the view that the assessee had discharged the burden of proof casted on the assessee to prove the identity, creditworthiness and genuineness of the lender. We note that the AO merely on the basis of suspicion, surmises and conjectures has disbelieved the documents produced by the assessee to prove the identity, creditworthiness and genuineness of the lender. The AO has not been able to controvert or could successfully discredit the veracity of the documents filed before him. Based on the aforesaid reasoning and factual finding which we have rendered above, we allow the appeal of the assessee and direct deletion of the addition of Rs.7,50,000/-.

Coming next to the interest disallowed to the tune of Rs.20,661/- to the lenders from whom the assessee has taken the unsecured loans for the purpose of its business, we are of the opinion that the interest expenditure incurred by the assessee to the tune of R.20,661/- has to be allowed and we direct the AO to allow the same.

In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 17.01.2018 Sd/- Sd/- (J. Sudhakar Reddy) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 17th January, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to: 1. Appellant – M/s. Jay Prakash Ganeriwala, G. T. Road (East), Punjabi More, Searsole Rajbari, Raniganj-713358 Respondent – ITO, Ward-3(1), Asansol. 2 3. The CIT(A) Asansol.