Loading judgment…
Facts
The assessee, an individual and proprietor of M/s. Shree Chamunda Creation, filed his return of income for AY 2017-2018. During scrutiny, the Assessing Officer (AO) noticed unsecured loans of Rs. 92,04,381/- in the balance sheet. The AO added Rs. 91,14,998/- as unexplained cash credit, considering the loans as bogus due to lack of satisfactory explanation regarding their genuineness and creditworthiness.
Held
The Tribunal noted that a significant portion of the addition pertained to opening balances of unsecured loans from previous financial years. It is a settled law that Section 68 additions can only be made in the year the credit is received, not for opening balances from prior years. For the current year's loans, the Tribunal found that while some creditors shared the same address as the assessee and their income was not commensurate with the loan amounts, further examination was required.
Key Issues
Whether the addition of unsecured loans amounting to Rs. 91,14,998/- as unexplained cash credit under Section 68 of the Income-tax Act is justified, considering the nature of opening balances and the genuineness of current year's loans?
Sections Cited
68, 115BBE, 234B, 234C, 133(6), 131, 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BANGALORE BENCHES “A’, BANGALORE
Before: Shri Waseem Ahmed & Shri Keshav Dubey
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “A’, BANGALORE Before Shri Waseem Ahmed, Accountant Member & Shri Keshav Dubey, Judicial Member ITA No.1086/Bang/2024: Asst.Year : 2017-2018 Sri.Leelaram Choudhary The Income Tax Officer M/s.Chamunda Creation Ward 5(2)(5) vs. No.12, Ground Floor Bangalore. Siddanna Lane, Cubbonpet Bangalore – 560 002. PAN: ADZPL8041N (Appellant) (Respondent) Appellant by: Smt.Suman Lunkar, CA Respondent by: Ms.Neha Sahay, JCIT-DR Date of Date of Hearing : 08.07.2024 Pronouncement: 24.07.2024
O R D E R Per Keshav Dubey, JM : This appeal at the instance of the assessee is directed against the order of the CIT(A) / National Faceless Appeal Centre, Delhi dated 29.03.2024 vide DIN & order No. ITBA/NFAC/S/250/2003-24/1063638650(1) passed u/s.250 of the Income-tax Act, 1961 (“the Act”) for Assessment Year (AY) 2017-18.
The assessee has raised the following grounds:-
“1. The learned Commissioner of Income-Tax (Appeals) has erred in confirming the order passed by the Assessing officer. The Appellate order confirming the assessment order is bad in law and is liable to be quashed. 2. Without prejudice, The learned CIT(A) has erred in confirming the addition made by the Assessing officer as unexplained cash credit u/s 68 of the Act. On proper appreciation of facts and law
2 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. applicable, there being no unexplained cash credit at all, the provisions of section 68 of the Act are not applicable to the fact of the case, the addition as made/confirmed being erroneous is to be deleted. 3. In any case, the authorities below have erred in not appreciating the fact that most of the loans were accepted during earlier years and having opening balances. The addition made to the extent of opening balance being bad in law and such addition is to be deleted. 4. The Authorities below have erred in not appreciating the fact that the identity, genuineness and the creditworthiness of the loan creditors is duly explainable and therefore the addition as made /confirmed u/s 68 of the Act is to be deleted. 5. The learned CIT(A) has erred in confirming that the provisions of Section 115BBE of the I.T. Act, are applicable to the above addition as made and confirmed. On proper appreciation of the facts of the law, it is clear that the provisions of Section 115BBE of the I.T. Act, are not applicable to the case of the appellant and therefore the computation of tax under Section 115BBE of the I.T. Act, being erroneous is to be deleted, 6. The Appellant denies the liability to pay interest u/s 234B and 234C of the Act. The interest having been levied erroneously is to be deleted. 7. In view of the above and other grounds to be adduced at the time of hearing it is requested that the impugned orders be quashed or at least addition made as unexplained cash credit u/s 68 of the Act be deleted, levy of tax at special rates be deleted and the interest levied be also deleted.” 3. The brief facts of the case are that the assessee being an individual filed his return of income for the assessment year 2017- 2018 on 09.08.2017 declaring total income of Rs.9,58,690. Subsequently, the case was selected for complete scrutiny under CASS. Accordingly, notices u/s.143(2) as well as u/s.142(1) of the Act were issued to substantiate the claims made by the assessee in his return of income. The assessee vide his online submission dated 09.11.2019 submitted that he is the proprietor of his business
3 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. running under the name and style of M/s.Shree Chamunda Creation and is into the business of buying and selling of sarees. During the course of assessment proceedings, the assessee has also uploaded the financial statements for the assessment year 2016-2017 & 2017- 2018, bank account statement, VAT returns, etc. On going through the details submitted by the assessee, it was observed by the Assessing Officer (AO) that the assessee had shown an amount of Rs.92,04,381/- in the balance sheet as on 31.03.2017 under the head “Unsecured Loans”. The assessee was required to furnish the name, address and PAN of the persons from whom unsecured loans had been availed during the financial year 2016-2017 and the ld.AO also observed that the assessee has furnished the relevant details as called for. The AO out of the total Unsecured Loans amounting to Rs.92,04,381/- has mentioned the details of the Unsecured Loans amounting to Rs.91,14,998/- in his Assessment Order as detailed below:-
Sl. Name of the person Loan amount No. (Rs.) 1. Mana Ram 7,48,882 2. Manju Devi 11,24,477 3. Ganesha Ram 9,22,527 4. Desu Devi 12,55,512 5. Vagtaram D Choudhary HUF 5,04,406 6. Una Ram 5,11,362 7. Vagtaram Devaji Choudhary 15,63,891 8. Ananda Ram 9,42,779 9. Geri 5,11,480 10. Rama Ram 4,00,000 11. Rekha Ram 2,00,000 12. Dhara Devi 2,65,013 13. Satish Kumar 1,64,669 Total 91,14,998
4 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. 4. The AO issued notice u/s.133(6) of the Act dated 26/11/2019 to the above persons who had given unsecured loans to the assessee requesting them to provide the details of their income, etc., but in response to the said notice u/s.133(6) of the Act, only 10 persons (Sr.Nos.1 to 10) replied on 04.12.2019 and the remaining 3 persons (Sr.Nos.11 to 13) did not file any reply. The AO on the ground that the persons who had replied are having the same address as that of the assessee and also their income was not in commensuration to the loans advanced by them, further issued summons u/s.131 of the Act in order to verify the genuineness of the loans advanced. However, none of the 10 persons mentioned above either appeared on the said date or filed any reply. Based on the above, the AO is of the opinion that the assessee has shown bogus loan and accordingly brought in his unexplained cash credit in the form of unsecured loans which the assessee has not proved to be genuine. Since the genuineness and creditworthiness of the persons are not proved, the amount of Rs.91,14,998 is treated as unexplained cash credit as per the provisions of section 68 of the Act.
Aggrieved by the assessment completed u/s.143(3) of the Act, the assessee preferred an appeal before the CIT(A)/NFAC. The CIT(A)/NFAC affirmed the view taken by the AO by passing an unreasoned & Non-speaking order by merely stating that “no satisfying logical explanation has been given by the appellant for this appeal. So, I have no reason to interfere with this addition of AO. Therefore, appeal is dismissed”.
5 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. 6. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper book comprising 115 pages enclosing therein – (i) copy of financial statements for the AY 2017-2018 along with copy of acknowledge of filing return of income for assessment year 2017-2018, (ii) copy of financial statement for the assessment year 2016-2017, (iii) copy of written submissions filed before the CIT(A) along with chart showing details of loan creditors along with PAN, opening balance and closing balance etc., and (iv) confirmation from loan creditors.
Before us, the learned AR vehemently submitted that the ld.CIT(A) grossly erred in passing an unreasoned order. Further, the AR of the assessee submitted that when interest paid on unsecured loans are accepted by the AO on which tax has also been deducted at source, the question of not accepting Principal loan Amount does not arise. It was also submitted that the assessee possess all the documentary evidences in support of obtaining the unsecured loan for the purposes of business which were also furnished during the course of assessment proceedings, as observed by the ld.AO in his assessment order also. Further, the AR of the assessee vehemently submitted that most of the Unsecured loans were Taken/accepted during the earlier years and having opening balances as on 01/04/2016, and therefore, the addition made to the extent of opening balances c/f from earlier years are bad in law and such addition is liable to be deleted. In this context, the learned AR also relied on the order of the ITAT Ahmedabad Bench in ITA No.1707/Ahd/2019 in case of ITO v. Samir J. Shah as well as the
6 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. order of the Hon’ble High Court of Delhi, vide order dated 12.08.2015 in the case of CIT-9 (erstwhile CIT-VI) v. Vrindavan Farms (P) Ltd.
The learned Departmental Representative, on the other hand, vehemently supported the orders of the Lower Authorities and further submitted that since the genuineness and creditworthiness of the persons & Transactions were not proved, the AO has rightly treated Rs.91,14,998 as unexplained cash credits as per the provisions of section 68 of the Act.
We have heard the rival submissions and perused the material on record. We observe that mainly the additions made u/s.68 of the Act amounting to Rs.91,14,998 was on account of the following:-
(i) The persons (Sr.Nos.1 to 10) who had replied to the notices u/s.133(6) of the Act are having the same address as that of the assessee;
(ii) The income of the persons, who replied to notices u/s.133(6) was not in commensuration to the loans advanced by them; and
(iii) In response to the summons issued u/s.131 of the Act, from Sr.Nos.1 to 10, none of them either appeared or filed any reply.
8.1 Further, we also cannot brush aside the fact that the assessee has furnished all the documentary evidences in response to show cause notice dated 12.11.2019 with regard to unsecured loans.
7 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. Further, it is also an undisputed fact that out of 13 loan creditors, 10 of them had filed their reply on 04.12.2019. As stated by the ld.AR of the assessee, the assessee had received most the Unsecured loans from relatives through account payee cheque only and also the assessee had paid interest to them also after deducting TDS as per the provisions of the Act, which is also not disputed by the AO. Further, the AR of the assessee drew our attention on confirmation from loan creditors (pages 102-115 of the PB) as well as details of loan creditors along with PAN, opening balance and closing balance etc. (page 91 of the PB). On verification of the above, we found that out of closing balance of unsecured loan amounting to Rs.92,04,381, an amount of Rs.81,73,804 was on account of the opening balances in respect of unsecured loans taken by the assessee in earlier financial years. Before proceeding further, it is appropriate to take note of section 68 of the Act, which reads as under:-
“68. Cash credits.—Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing Officer], satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture 7
8 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. capital fund or a venture capital company as referred to in clause (23FB)of section 10.]”
8.2 Thus, from the plain reading of section 68 of the Act, it is clear that the following conditions must be satisfied in order to invoke the provisions of section 68 of the Act:-
(i) Any sum must be found to be credited in the books of an assessee maintained for any previous year (ii) The assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the AO satisfactorily. Then the sum so credited may be charged to income- tax as the income of the assessee of that previous year.
8.3 In the present case, we found that the addition made u/s.68 of the Act to the extent of Rs.81,73,804 was on account of opening balance in respect of unsecured loans taken by the assessee in earlier financial years. It is well settled law that addition u/s.68 of the Act can be made only during the year in which such credits has been received and if the credit balances appearing in the account of the assessee is not pertaining to the year under consideration, the AO cannot make addition u/s.68 of the Act in the subsequent assessment year. This view is supported by the decision of the ITAT Ahmedabad Benches in the case of Samir J Shah (supra), wherein the Tribunal held as under:-
“6. We have heard the rival contentions and perused the material on record. We observe that additions made u/s. 68 of the Act amounting to Rs. 4,74,88,871/- was on account of opening balance in respect of unsecured loans taken by the assessee in earlier 8
9 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. financial years. It is a well settled law that addition u/s. 68 can be made only during the year in which such credit has been received and if the credit balance appearing in the account of the assessee is not pertaining to the year under consideration, the Assessing Officer cannot make addition u/s. 68 of the Act in the subsequent assessment year. This view is supported by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Jagatkumár Satishkumar Patel (2014) 45 taxman.com 441 (Gujarat). Similar view was also taken by the Gujarat High Court in the case of Dy. CIT vs. Amod Petro-Chem (P) Ltd. 2008 ITO vs. Shri Samir J. Shah 217 CTR (Guj) 401. The Delhi High Court in the case of CIT vs. Usha Stud Agricultural Farms Ltd. 301 ITR 384 (Del) also held that when the credit balance appearing in the account of the assessee did not pertain to the year under consideration, the Assessing Officer was not justified in making the impugned addition u/s. 68 of the Act. Again, the Delhi ITAT in the case of Mahaveer Prasad vs. ITO 40 taxman 35 (Del Trib) (Tax Magazine) held that amounts found in the books of accounts of the assessee were in existence much prior to the beginning of the accounting period and therefore the same cannot be treated as income of the assessee during the relevant previous year. Again, the Delhi ITAT in the case of Nuchem Ltd. vs. DCIT 87 TTJ (Delhi Trib) 166 held that since Revenue has failed to prove that the amounts were credited to the books of the assessee during the year and these amounts were brought forward from earlier years, therefore, it is a settled law that addition u/s. 68 could be made only if the amount was credited in the accounts of the assessee in the relevant financial year. Accordingly, the Delhi ITAT directed the addition to be deleted. Further, in the case of Shri Vardhman Overseas Ltd. vs. ACIT 24 SOT 393 (Delhi Trib.) held that since no new amount has been credited by the assessee in its account during the year under consideration, applicability of section 68 of the Act is ruled out. Therefore, in view of the above judgments, we observe that it is a settled law that opening balance o unsecured loans coming from previous financial years cannot be added u/s. 68 of the Act to th income of the assessee. We further observe that even the PAN numbers as well as addresses of all such parities were duly furnished by the assessee to the ld. Assessing Officer during the course c assessment proceedings. The copy of chart containing details of unsecured ITO vs. Shri Samir J. Shah loans which were provided to the Assessing Officer is produced before us at pages 9 to 13 of the paper book. We observe that ld. CIT(A) also gave due consideration to the above chart giving details of party wise break up of loans (at pages 12 to 14 of the order of the CIT(A)), while giving relief to the assessee. Accordingly, so far as addition u/s. 68 of the Act on account of opening balance Rs.4,74,88,871/- is concerned, we find no infirmity in the order of ld.CIT(A) so as to call for any interference.”
10 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary. 8.4 Accordingly, so far as the addition u/s.68 of the Act on account of opening balances b/f are concerned, we are restoring this issue to the file of AO to verify/examine that out of the closing balances of Unsecured Loans amounting to Rs. 92,04,381/- as on 31/03/2017 how much were brought forward from the earlier years and accordingly delete the additions on Account of Opening Balances added u/s.68 of the Act.
8.5 With regard to the balance of unsecured loans taken/accepted during the year under consideration amounting to Rs.42,37,072/- (Pg.91 of PB), we are also restoring this issue to the file of AO for fresh consideration with a direction to examine/verify the identities of the parties more particularly having sent their reply u/s 133(6) of the Act from the same Address as that of the Assessee in respect of the transactions entered in the year under consideration, genuineness of the Transactions & creditworthiness of the parties and to decide this issue in accordance with Law after giving reasonable opportunity of being heard. The assessee is also directed to cooperate with the proceedings before the Revenue Authorities. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 24th July, 2024.
Sd/- Sd/- (Waseem Ahmed) (Keshav Dubey) Accountant Member Judicial Member Bangalore; Dated: 24th July, 2024 Devadas G* 10
11 ITA No.1086/Bang/2024 (AY 2017-18) Sri.Leelaram Choudhary.
Copy to: 1. The Appellant. 2. The Respondent. 3. The CIT(A) Concerned. 4. The DCIT concerned. Asst.Registrar 5. The Sr. DR, ITAT, Bangalore. ITAT, Bangalore 6. Guard File.