KUSHALRAJ,CHENNAI vs. ITO, CHENNAI

आयकर अपीलीय अिधकरण, ‘बी’ �यायपीठ, चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी एन.आर.एस. गणेशन, �याियक सद�य एवं �ी िड.एस. सु�दर �संह, लेखा सद�य केसम� BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos. 2609 & 2610/Mds/2016 िनधा�रण वष� / Assessment Years : 2011-12 & 2012-13 Shri Kushalraj, The Income Tax Officer, No.418, 5th Floor, Mint Street, v. Corporate Ward – 5(1), Sowcarpet, Chennai – 600 079. Chennai – 600 006. PAN: AIXPK0721B (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri T. Banusekar,CA ��यथ� क� ओर से/Respondent by : Dr.B. Nischal, JCIT सुनवाई क� तारीख/Date of Hearing : 25.04.2017 घोषणा क� तारीख/Date of Pronouncement : 05.06.2017 आदेश आदेश /O R D E R आदेश आदेश PER N.R.S. GANESAN, JUDICIAL MEMBER:

These appeals of the assessee are directed against the orders of the Commissioner of Income Tax (Appeals)-5, Chennai dated 29.07.2016 and pertains to the assessment years 2011-12 & 2012- 13.

Manish Traders and interest of Rs.1,95,765/- for the assessment year 2011-12 as claimed by the assessee. The assessee explained before the AO that a sum of Rs.25 lakhs was received as trade advance through cheque. The assessee subsequently refunded the trade advance. In the books of account, it was shown as loan received from M/s. Manish Traders. Therefore, it was explained before the AO that what was received by the assessee is not a loan but trade advance. In fact M/s. ManishTraders placed orders to the extent of Rs.74,03,032/- at the time of making advance of Rs.25 lakhs. Since the rates were increased the order was cancelled. The AO however rejected the claim of the assessee on the ground that the transaction was sham and bogus. Therefore the AO made addition of Rs.26,95,765/-. On appeal by the assessee, the CIT(Appeals) confirmed the addition made by the AO without re-appreciating the material available on record. According to the Ld.representative, the assessee received trade advance on receiving order for Rs.74,03,032/- and the transaction could not be carried out, the advance refunded to M/s. Manish Traders, therefore no addition is called for.

Manish Traders. The assessee has also issued a cheque for Rs.35 lakhs on 21.03.2012. Though the assessee claimed that the cheque was issued in the name of M/s. Nehru Marketing, the Axis Bank confirmed that the cheque was issued in the name of M/s. Manish Traders. Therefore addition was rightly confirmed by the CIT(Appeals).

The fact remains that there was bank transactions between the assessee and M/s. Manish Traders. The assessee claims that what was received by the assessee is a trade advance and not a loan.

Therefore it cannot be treated as income of the assessee. The assessee also claims that the trade advance of Rs.25 lakhs was returned to M/s. Manish Traders. The assessee has also raised a ground with regard to reopening of the assessment. The fact remains is that the addition of Rs.25 lakhs is made on the credit fund in the books of account of the assessee and another sum of Rs.1,95,765/- was made towards interest and the total addition of Rs.26,95,765/-. The assessee appears to have claimed before the AO that M/s. Manish Traders could not pay the balance amount in time, therefore the prices gone up. Since the price were gone up, the transaction could not be completed, hence, the returned the trade advance with interest. The AO observed in the assessment order that as per agreement the assessee was entitled to forfeit a portion of trade advance. From the order of the CIT(Appeals) for the assessment year 2010-11, copy of which is produced by the Ld. representative for the assessee, it appears that the advance of Rs.25 lakhs was added by the AO. The CIT(Appeals) however deleted the same. The CIT(Appeals) for the assessment year 2010-11 has observed as follows: “4.2 The AO added Rs.26,00,000/- standing in the name of M/s. Manish Traders in the personal books of the assessee as a letter written to "M/s.Manish Traders returned unserved. When the assessee was questioned on this subject, the assessee stated that the nature of transaction with M/s. Manish Traders was trade and not that of loan. It was also stated that M/s. Manish Traders placed an order with the assessee for purchase of toys. Since the detail did not materialize, the assessee repaid the amount with interest in the next Financial Year. The assessee also submitted photocopy of the PAN card, Form No.15G and TNVAT registration certificate from M/s. Manish Traders to the AO.

4.3 Perusal of the IOB a/c, Sowcarpet Branch standing in the personal name of the assessee reveals that the following amounts were repaid to M/s. Manish Traders.

03.04.2010 Rs. 2,50,025/- 09.04.2010 Rs.14,00,050/- 06.10.2010 Rs.11,08,480/- ------------------- Total Rs.27,58,555/- --------------------

It is also seen that M/s. Manish Traders issued a purchase order to the assessee in which he asked for various items for a sum of Rs.74,03,032/-. The deal did not materialize into a sale transaction.I t is also seen that M/s. Manish Traders issued a cheque dated 29.09.2009) to the assessee drawn by M/s. Mahalakshmi Trading Company in favour of the assessee for Rs.23,00,000/-. A further sum of Rs.1,00,000 /- was also received by the assessee by cheque dated 12.01.2010 drawn in favour of M/s. Mahalakshmi Trading Company. Both were reflected in the bank account of the assessee. Perusal of the Axis Bank a/c in the name of Kushalraj reveals that Rs.23,00,000/- was credited on 29.09.2009 by the name of M/s. MahaJakshmi Trading Company. Similarly on 12.01.2010, Rs.1,00,000/- was credited in the assessee's a/c by the name of M/s.Mahalakshmi Trading Co. The A.O. also observed that Rs.2,00,000/- was received from M/s. Jain Granites but not on behalf of M/s. Manish Traders. From the above, it is seen that the sum of Rs.26,00,000/- was received by the assessee and were credited into assessee's bank a/c. The AO did not prove that there is no entity existing in the name of M/s. Mahalakshmi Trading Company whereas the assessee from the very beginning informed the AO that the cheques issued to the assessee are in the name of Mahalakshmi Trading Company. The AO also did not deny the receipt of Rs.2,00,000/- from M/s. Jain Granites. The assessee in his letter to the AO also informed that the money was received from parties on behalf of M/s. Mahalakshmi Trading Company. It was also informed to the AO that the money was returned to M/s. Manish Traders in the subsequent year with interest. The AO was also provided with the PAN, TNVAT, Form 15G, etc. Perusal of IOB a/c of the assessee also reveals that the sums were repaid back to M/s. Manish Traders.

In view of the above decision, I am of the considered view that the AO did not prove that the sum of Rs.26 lakhs was assessee's own money and there is no concern in the name of M/s. Mahalakshmi Trading Company. It was also not proved that the cheques deposited in Axis Bank a/c are not that of M/s. Mahalakshmi Trading Co. and M/s. Jain Granites. The repayment were also not disproved by the AO. The AO is therefore directed to delete the additions made in this regard. Since the business transaction did not take place, the assessee paid a sum of Rs1,10,273/- being interest on the said amount of Rs.26,00,000/-. By mutual agreement and to compensate the loss, the assessee paid the interest and hence it is an allowable expenditure due to business exigencies. The AO's order is silent on the receipt and payment of money through banking channel. The investigation was not taken to the logical end by the AO. Since the receipt and payment through banking channel are proved by the assessee, it cannot be held as unexplained cash credits.”

In view of the above order of the CIT(Appeals) for the assessment year 2010-11, which attained finality, this Tribunal is of the considered opinion that AO cannot say that the transaction was sham or bogus. The CIT(Appeals) specifically found that advance was returned back to M/s. Manish Traders. In view of the above, the addition made by AO is not sustainable. Accordingly, the orders of both the authorities below are set aside and the addition made by the AO is deleted.

Order pronounced on 5th June, 2017 at Chennai.