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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal by the Revenue against the order of ld. CIT(A)-XXVII, New Delhi dated 20.02.2014 for the assessment year 2008-09 on the following grounds :
“ 1. On the facts and the circumstances of the case, the Ld. CIT (A) had erred in law by deleting the addition made by the A.O of Rs. 34,10,000/- on account of unexplained cash credits under section 68 of IT, Act.
2. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that creditors have given huge amount of loan to the assessee despite having a meager income as reflected from their ITR's filed during examination
proceedings, hence genuineness & creditworthiness of the loan creditors is doubtful.
On the facts and the circumstance of the case, one of the creditors M/s Chawla Metals has not filed his ITR for the relevant period i.e for the F.Y 2007-08.
On the facts and the circumstance of the case, as per the examination of the bank pass book of the creditors it was revealed that same amounts mainly have been transferred to creditor's account on same day or just one day earlier, hence genuineness and creditworthiness of the loan creditors is doubtful.
5. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that AO has nowhere accepted that, the creditworthiness & genuineness of creditors is conclusively proved.
6. On the facts and the circumstances of the case, Ld, CIT(A) has erred in restricting the addition to 50% in case of business promotion expense, interest paid on unsecured loans, disallowances made on account of car maintenance, interest on car loan, depreciation on car, telephone expenses, depreciation on telephone and also restricting the addition of commission paid to Rs.41,100/-(50% of the commission paid to son) instead of Rs.4,32,075, as added by AO.”
The brief facts of the case are that the respondent-assessee carried on the trading business of telephone equipments under the name and style of M/s. Tayal Telecom. The respondent filed its return of income on 29.09.2008 declaring gross total income at Rs.13,54,299/-. During the course of assessment proceedings, the AO noticed that during the year under consideration, the assessee received cash credits in the form of unsecured loans from following persons :
(i). M/s. Chawla Metals Rs.5,00,000/- (ii). M/s. Himalaya Plastic Co. Rs.4,45,000/- (iii). M/s. Maxworth Buildcom Pvt. Ltd. Rs.8,75,000/- (iv). Mr. Rajesh Gupta Rs.1,10,000/- (v). Sh. Lalit Kumar Rs.15,90,000/- Total Rs.35,20,000/- The AO vide questionnaires asked the assessee to justify the true nature and source of the said credits in terms of section 68 of the IT Act by way of corroborating evidences. Having considered the replies of the assessee and the details furnished before him, the AO concluded that the assessee had utterly failed to prove the creditworthiness and genuineness of the transactions by adducing corroborative evidence and therefore, the assessee cold not discharge the initial onus cast upon him u/s. 68 of the Act. The AO, therefore, relying upon various case laws, treated the aforesaid credits as deemed income of the assessee and added the same to the total income of the assessee u/s. 68 of the IT Act. The assessee carried the matter before the ld. CIT(A), where the appeal of the assessee stood partly allowed, thereby deleting the addition of Rs.34,10,000/- and sustaining the addition of Rs.1,10,000/- made by AO as undisclosed credits received by assessee from Mr. Rajesh Gupta vide impugned order. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
3. The ld. DR, reiterating the contents of assessment order, submitted that the addition made by AO u/s. 68 of the Act has wrongly been deleted by the ld. CIT(A) without any good reason, as the assessee failed to discharge its initial onus cast upon it u/s. 68 of the Act. It was submitted that the creditworthiness of the creditors and genuineness of the transactions could not be proved by corroborative evidence and therefore, the impugned order needs to be set aside and the order of AO is liable to be confirmed. On the other hand, the ld. AR of the assessee reiterated the submissions made before the authorities below and relied on the order of the ld. CIT(A).
4. We have considered the rival submissions and have gone through the entire materials available on record and we find that the ld. CIT(A) has elaborately dealt with the issue in right perspective. The ld. DR could not rebut the factual findings recorded by the ld. CIT(A) in the impugned order.
The relevant findings of the ld. CIT(A) are incorporated in para 3 to 9 of the impugned which are reproduced as under for the sake of ready reference:
“3. Ground No. 2 is against the disallowance of Rs. 35,20,000/- u/s 68 of the I.T. Act being unsecured loan received from five parties. During the appellate proceedings, the appellant filed additional evidence on 10.09.2012 stating that the appellant brought all the five loan creditors before the A.O. on 14.12.2010 but they were not examined by the A.O. on that date. When the creditors were again produced on the next hearing on 16.12.2010, the A.O. intimated them that the assessment was already completed. Based on the above plea, my predecessor had admitted the additional evidence and forwarded the evidence for A.O.'s remand report on 12.09.2012. The A.O. furnished the remand report on 16.04.2013 objecting to the additional evidence but without stating what was mentioned in the order sheet on the dates 14.12.2010 and 16.12.2010. Therefore during the appellate proceedings, I have directed the appellant to produce all the loan creditors before the A.O, for examination and similar directions were also issued to the A.O. u/s 250(4) on 12.12.2013. Accordingly, the appellant produced four of the loan creditors before the A.O. and sworn statements were recorded from them. The A.O. subsequently submitted two more remand reports dated 08.01.2014 and 27.01.2014. The case is now decided based on these remand reports submitted by the A.O.
4. As per the assessment order, the appellant received Rs. 5,00,000 from M/s Chawla Metals, Rs. 4,45,0007- from M/s Himalya Plastics whose proprietor is Shri. Trilok Chand Tayal brother of the appellant, Rs. 8,75,000/- from M/s Maxworth Buildcom Pvt. Ltd. in which appellant's son Shri Raj Kumar Tayal is a Director, Rs. 15,90,000/- from Shri Lalit Kumar a relative of the appellant and Rs. 1,10,000/- from Shri Rajesh Gupta. The A.O. in assessment order held that the appellant had not proved the identity, creditworthiness and genuineness of the loan with regard to the above five loan creditors and therefore, added back Rs. 35,20,000/- u/s 68 of the I.T. Act. As regards to M/s Chawla Metals, sworn statement was recorded from Shri Ashok Kumar the proprietor and he had explained the source of Rs. 5,00,000/- given to the appellant. Therefore, the addition of Rs. 5,00,000/- on loan received from M/s Chawla Metals is not sustainable.
With regard to loan of Rs. 4,45,000/- from M/s Himalya Plastics, sworn statement of Shri Trilok Chand Tayal, brother of the appellant was recorded on 20.12.2013 and the relevant portion of statement is as follows :-
Question 5: On observing the ITR your income from your ITR you are having a meager income of Rs. 1,88,140/- only and you have extended loan of Rs.4,88,047/- to Sh Ghanshyam Dass Tayal. Kindly prove your creditworthiness and genuineness by submitting balance sheet & P&L account of M/s Himalya Plastics Co. along with their statement?
Ans: The loan amount as on 31.03.2008 was Rs. 4,88,047/-. We had frequent transaction with M/s Tayal Telecom. During F.Y. 2007-08 we paid 14,05,000/-and received back Rs. 9,60,000/-. All these transaction were through bank only. I am furnishing my bank statement, balance sheet to prove to genuineness of transaction and creditworthiness. First cheque of Rs. 3,00,000/- was given by us on 09.04.2007. We received Rs. 3,00,000/-from them on 07.04,2007. Next Rs. 4,45,000/- was given by us out of our bank balance were in Rs. 13,50,000/- was received by us from Sh. Hem Chand Aggarwal. Next Rs. 5,00,000/- was given by us against Rs. 5 lacs received by us on 15.06.2007. Last cheque of Rs. 1,60,000/-was given by us to them against Rs. 1,60,000/- received by us from them.
6. The A.O. in the remand report dated 08.01.2014 had stated that the appellant had proved the creditworthiness and genuineness of the loan of Rs. 4,45,000/- from M/s Himalya Plastics. As per the above mentioned sworn statement, the appellant received Rs. 14,05,000/- and paid back Rs.9,60,000/-leaving a balance of Rs. 4,45,000/- as payable to M/s Himalaya Plastics. However, as per the sworn statement of Sh. Trilok Chand Tayal amount receivable as on 31.03.2008 from the appellant is Rs.4,88,047/-. Therefore, the appellant is hereby directed to file a reconciliation of these two figures of Rs. 4,45,000/- as payable by the appellant and Rs.4,88,047/- stated to be receivable by M/s Himalaya Plastics before the A.O. within 15 days from the receipt of this order. The A.O. is directed to verify the same and if there is any variation which cannot be properly explained by the appellant same may be sustained as an addition. If the variation is properly explained by the appellant then the addition of Rs. 4,45,000/- requires to be deleted.
7. As regards to the addition of Rs. 8,75,000/- received from M/s Maxworth Buildcom Pvt. Ltd, sworn statement of Sh. Raj Kumar Tayal, son of the appellant and director of the company was recorded by the A.O. on 20.12.2013. The loan of Rs. 8,75,000/- to the appellant was recorded as share application money paid to M/s Tayal Telecom in the balance sheet of M/s Maxworth Buildcom Pvt. Ltd. and Shri. Raj Kumar Tayal explained this error as incorrect classification. Since the source and creditworthiness is proved, this addition of Rs. 8,75,000/- also requires to be deleted.
8. As regards to the loan of Rs. 15,90,000/- Lalit Kumar relative of the appellant, sworn statement was recorded on 20.12.2013 by the A.O. and the relevant portion is as follows:
Question: On observing your ITR you have a meager gross income of Rs. 2,00,697/-. However, you have extended a loan of Rs. 15,90,000/- to the assessee which is grossly disproportionate to your income. Please explain your creditworthiness and genuineness?
Ans: During this period I sold gold ornament etc to M/s Uskn Jewellers Pvt Ltd vide nine bills. I am filing copies of such bills. I received payment of sell proceed of ornaments from the jeweler through cheques. This cheques were credited in my bank account with SBI through which I advanced Rs. 15,90,000/- through five different cheques. I earned interest of Rs. 1,00,098/- on such loan from M/s Tayal Telecom. The deducted tax of Rs. 10,310/- at source out of interest paid to me. As such the closing balance as on 31.03.2008 was Rs. 16,79,788/-.
Since, Sh. Lalit Kumar had proven the source of the loan given to the appellant the addition of Rs. 15,90,000/- made by the A.O. is also not sustainable. The A.O. also made addition of Rs. 1,10,000/- in the assessment order being loan received from Sh. Rajesh Gupta as identity, genuineness and creditworthiness were not proved by the appellant. During the remand proceedings, the appellant did not produce Sh. Rajesh Gupta before the A.O. and instead a confirmation letter and a copy of his return of income for the A.Y. 2008-09 were filed. However, the fact remains that Sh. Rajesh Gupta's total income is only Rs. 1,19,730/- and the source of loan of Rs. 60,000/- given on 17.01.2008 and loan of Rs. 50,000/- given on 18.01.2008 are not properly explained by the appellant even during the remand proceedings. The onus was on the appellant to prove the creditworthiness of Sh. Rajesh Gupta and since the same is not proved by the appellant even during the remand proceedings, the addition of Rs. 1,10,000/- made by the AO is sustained. As a result, the appellant gets a relief of Rs. 29,65,000/- (500000 + 875000 + 1590000) and the addition of Rs. 4,45,000/- may be deleted after verifying the reconciliation of the appellant regarding M/s Himalaya Plastics. Therefore, only an the addition of Rs. 1,10,000/- is sustained and ground no.2 is treated as partly allowed.”
On going through the aforesaid findings of the ld. CIT(A), we find no good reason to interfere with the same for want of any contrary material adduced on behalf of the Revenue in rebuttal of the same. We, therefore, observe that the ld. CIT(A) has passed a reasoned order which needs no interference.
5. The next issue involved in this appeal is that the Revenue has challenged the restriction of addition to 50% in case of business promotion expense, interest paid on unsecured loans, disallowances made on account of car maintenance, interest on car loan, depreciation on car, telephone expenses, depreciation on telephone and also restricting the addition of commission paid to Rs.41,100/-(50% of the commission paid to son) instead of Rs.4,32,075, as added by AO.
We have gone through the impugned order on the above issues and we find that these issues have also been properly dealt with by the ld. CIT(A) against which no contrary material in available on record from the side of Revenue. The findings recorded by the ld. CIT(A) from para 10 to 14 are reproduced as under for ready reference :
“10. Ground Nos. 3(a) & 3(b) are against the disallowance of Rs.2,08,453/- on interest expenses made in the computation statement as the genuineness and creditworthiness of the loan was not established. As per the grounds of appeal
, in the assessment order the disallowance is mentioned as Rs. 1,48,088/- only being the disallowance of interest of Rs. 1,00,098/- paid to Shri Lalit Kumar and Rs. 47,990/- paid to M/s Himalya Plastics and not Rs. 2,08,453/- mentioned in the computation statement. This appears to be a clerical error and as the difference between Rs. 2,08,453/- and Rs. 1,48,088/- is not explained in the assessment order the disallowance of Rs.60,365/- (208453 - 148088) being the difference between these two figures is not sustainable. Since, Sh. Lalit Kumar had confirmed the receipt of interest of Rs. 1,00,098/- in the sworn statement recorded on 20.12.2013 the disallowance of interest expenses of Rs. 1,00,098/- also is not sustainable. As regards to Rs. 47,992/- paid to M/s Himalaya Plastics the same may be allowed after verifying the reconciliation to be filed by the appellant with regard to loan amount outstanding as mentioned above in para no. 6 of this order. If the difference in the figures between Rs.4,45,000/- and Rs. 4,88,047/- due to M/s Himalaya_Plastics is because of this interest amount then the disallowance of Rs. 47,992/- is not sustainable. If the appellant is unable to explain the difference between the figures then the disallowance of interest of Rs. 47,992/- is to be sustained or accordingly modified. As a result, ground nos.
3. (a) and 3(b) are treated as allowed subject to above directions regarding verification mentioned above.
11. Ground No.4 is regarding the disallowance of interest on unsecured loan amounting to Rs. 4,52,865/-. As per the assessment order, appellant debited Rs. 6,00,953/- as interest on unsecured loans. The appellant had shown interest fee advances of Rs. 1,54,74,228/- and therefore, the A.O. disallowed further interest of Rs. 4,52,865/- after initially disallowing Rs. 1,48,088/- on interest paid to Shri Lalit Kumar and to M/s Himalaya Plastics. The A.O. made these disallowances of interest on the ground that interest free advances were given to other business entities. During the appellate proceedings, the appellant stated that most of the advances were paid for investments in properties only. Copy of the balance sheet filed also indicates that these were mostly investments made by the appellant in properties. The A.O. had not made any specific finding in the assessment order that interest
bearing funds were diverted to give interest free advances to other business entities. However, the appellant had not properly explained the interest paid on unsecured loans or the source of all the interest free advances made other business entities. Therefore, the interest disallowance made by the A.O. is restricted to 50% of the disallowance of interest of Rs. 4,52,865/- and the appellant is granted a relief of the balance 50% of interest disallowance by the A.O. Thus, the disallowance of Rs. 2,26,433/- is sustained and the appellant gets a relief of Rs. 2,26,432/-. Therefore, ground no. 4 is partly allowed.
Ground No. 5 is against the disallowance of Rs. 1,25,986/- out of business promotion expenses. As per the assessment order, the appellant had incurred an expense of Rs. 1,23,000/- on a tour to Malaysia and this was disallowed. The A.O. made further disallowance of Rs. 2,986/- being expenses not supported by proper vouchers. During the appellate proceedings, the appellant stated that the trip to Malaysia was arranged by M/s Tata Tele Services and the appellant as a distributor became part of the trip. Therefore, according to the appellant the expenses of business promotion were incurred for business purposes only. However, personal element in these expenses incurred in Malaysia cannot be completely ruled out and therefore, 50% of the disallowance made by the A.O. is sustained and similarly the disallowance for expenses not supported by vouchers is also limited to 50% of the disallowance made by the A.O. Thus, the disallowance of Rs. 62,993/- is sustained and the appellant gets a relief of Rs. 62,993/-. Therefore, ground no. 5 is partly allowed.
Ground No. 6 is against the disallowance of 50% commission expenses amounting to Rs. 4,32,075/- on the ground that some of these commission were paid to the appellant's relatives. As per the appellant only a sum of Rs. 82,200/-was paid as commission to his son and the other payments were not made to any relatives and was paid at Rs. 30/- per piece of telephones sold. The appellant furnished the details of commission paid and stated that TDS was also deducted from these payments. Therefore, 50% of the disallowance paid to Shri. Neeraj Kumar, son of the appellant alone is sustained. Therefore, the addition of Rs. 41,100/- only is sustained and the balance disallowance of commission expense of Rs. 3,90,975/- (432075 - 41100) is deleted. As a result, ground no. 6 is partly allowed.
Ground Nos. 7, 8, 9, 10 & 11 are against the ad-hoc disallowance of Rs. 1,12,148/- at 20% of expenses relating to car maintenance, interest on car loan, depreciation on car, telephone expenses and depreciation on telephone. Since, personal element in these expenses cannot be completely ruled out, I sustain 50% of the above disallowances and thus ad-hoc disallowance of Rs.56,074/- is sustained. The appellant gets a relief of Rs. 56,074/- and ground no.7, 8, 9, 10 &11 are partly allowed.”
In view of the aforesaid findings and for want of any contrary material adduced on behalf of the Revenue, we find that the conclusions reached by the ld. CIT(A) are supported by good reasons which need no interference.
Accordingly, the impugned order is sustained on the above issues also.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 26.10.2016.