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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
O R D E R
Per Asha Vijayaraghavan, Judicial Member
This appeal is filed by the assessee against the order dated 22.7.2013 of the CIT(Appeals)-II, Bangalore for the assessment year 2009-10.
The assessee is a radiologist and filed his return of income for the AY 2009-10 on 31.3.2010 declaring total income at Rs.5,15,924. After processing the return u/s. 143(1) of the I.T. Act, it was selected for scrutiny.
The assessment was completed u/s. 143(3) vide order dated 29.12.2011 and the total income has been determined at Rs.61,48,057 by bringing to tax the following amounts:- i) Unconfirmed sundry creditors Rs. 30,00,000 ii) Interest not related to business Rs. 12,74,731 iii) Excess salary payment Rs. 4,72,267 iv) Difference in bank deposits Rs. 14,01,059 Total Rs. 61,48,057
With respect to unconfirmed sundry creditors of Rs.30 lakhs, the AO noted that the assessee has shown loans outstanding as on 31.3.2009 at Rs.87,14,000 out of which the AO was convinced with the assessee’s explanation that only loans amounting to Rs.30 lakhs was borrowed during the year ended 31.3.2009. The AO asked the assessee to produce the confirmation letters from the creditors concerned, but the assessee failed to comply with the AO’s direction. In view of the assessee’s failure to furnish confirmation letters from the creditors, the AO disallowed the assessee’s claim to the extent of Rs.30 lakhs and brought the same to tax.
Before the CIT(Appeals), the ld. AR contended that the assessee could not furnish Annexure-I during the assessment proceedings due to paucity of time and therefore the CIT(Appeals) remanded the matter under Rule 46A of the I.T. Rules to the AO. The AO gave an elaborate remand report which is extracted at para 3.4 of the CIT(A)’s order as follows:-
“1. Sundry Creditors – Additions Rs.30,00,000/- In the course of Remand proceedings, summons were issued to some of the creditors and the assessee produced some of the creditors, purport to have advanced loans to the assessee. i.e. Dr. Suresh Kumar. The alleged Creditors were examined on oath and statement recorded. For the sake of clarity, the gist of the statement is enclosed separately as annexure-1. The same is self explanatory. As could be seen from the above, majority of the creditors, except one, do not have sufficient source for advancing loan to the assessee Dr. V. Suresh Kumar. Some of the creditors stated that they have paid cash to Dr. V. Suresh Kumar in different financial year and not as shown by Dr. V. Suresh Kumar. The assessee has not proved the credit worthiness of the Creditors and genuineness of the transaction. • Merely producing a letter from a third party, the assessee could not be said to have discharged the initial onus cash on it. 70 ITR 407(Cal) • Merely identifying the creditor does not discharge the burden. What is further required is sufficient evidence to show that the entry found in the books of account of the assessee is genuine. • Merely establishing identity of creditor is not enough. The assessee Co., failed to prove genuineness: of cash credit and genuineness of the transaction. This view is well supported by the decision of Allahabad bench of ITAT in 84 ITD 289 (All. Trib) • If there is an entry in the account books of the assessee which shows the receipt of a sum, the initial burden is on assessee to explain the nature and source of such credit-Sreelekha Banerjee v CIT (1963) 49 ITR 112(SC). The assessee is required to establish proof of identity of his creditors, capacity of the creditor to advance money and genuineness of the transactions. In the instant case, the assessee has failed to explain satisfactorily the credit worthiness of the creditors and genuineness of the transactions. Majority of the creditors stated that they have no bank account and no Permanent Account Number. In view of the foregoing, the addition of Rs.27,50,000/- out of Rs. 30,00,000/- requires to be upheld, since one creditor by name Sri. B.V. Ramdas had filed his return of income with his jurisdictional officer showing Dr. V. Suresh Kumar as his debtor for a sum of Rs.2,50,000/-.”
The CIT(Appeals) after considering the material on record, remand report by the AO and the assessee’s rejoinder on the remand report held that the assessee is expected to produce solid proof and the creditors for examination and he has failed to do so, he held that the creditors to the extent of Rs.27,50,000 to be unproved. He held that the only creditor, Shri B.V. Ramdas in whose name a credit of Rs.2,50,000 was shown by the assessee, has shown the assessee as a debtor for Rs.2,50,000 in his return of income with his jurisdictional AO. Therefore, the CIT(Appeals) sustained the addition to the extent of Rs.27,50,000.
Aggrieved, the assessee is in appeal before us. We have heard both the parties and perused the material on record.
The ld. counsel for the assessee submitted before us that the assessee has given the details of all the creditors from whom he has received a sum of Rs.30 lakhs during the year. He submitted that there are as many as 29 creditors and in respect of all the creditors the assessee has filed confirmation letters and the creditors were also examined by the AO in the course of assessment proceedings and thus identity of the creditors is not doubted. It was submitted that after examination of the creditors, the AO has reported that these creditors do not have sufficient creditworthiness to make the impugned loans to the assessee. It was pointed out that the creditors were all not fresh creditors, but old creditors who have advanced money to the assessee even in the earlier years. The ld. counsel for the assessee further submitted that the assessee has given details of all the creditors from whom he has received a sum of Rs.30 lakhs during the year and the extent of loans received from these creditors during the year under appeal is sought to be disbelieved by the AO on pure suspicion and surmises. It was prayed that the entire issue has to be reconsidered after examining all the creditors once more.
The ld. DR relied on the order of the CIT(Appeals).
We find that the AO has disbelieved the creditworthiness of the creditors, though identity of the creditors is not doubted. In these circumstances, in the interest of justice, we deem it fit that one more opportunity is to be given to the assessee to prove the creditworthiness of the creditors to the satisfaction of the AO. Accordingly, we set aside the order of the CIT(Appeals) and remit the issue to the file of the Assessing Officer, who shall decide the issue de novo in accordance with law after affording opportunity of being heard to the assessee.
The next issue is with respect to disallowance of interest of Rs.12,74,731 u/s. 36(1)(iii) of the Act. The AO observed that the assessee had availed most of the loans during the previous years relevant to AYs 2006-07 & 2007-08 for which years returns of income were not filed. A Honda Civic car is the only asset purchased for the assessee’s professional use and most of the loans taken during the previous year relevant to AY 2009-10 had been used for personal purpose i.e., acquisition of residential sites. The AO therefore disallowed a sum of Rs.12,74,731 out of the interest claimed as being unrelated to the assessee’s profession and brought the same to tax.
Before the CIT(Appeals), it was submitted that the assessee has taken the loans in the earlier years and the same was used for the purpose of profession carried on by the assessee, which was invested in various assets and the interest paid by the assessee is wholly and exclusively for the purposes of the business of the assessee. The CIT(Appeals) called for a remand report and the AO in his remand report stated as follows:-
“Interest claimed Rs.12,74,731/- In the course of remand proceedings, the assessee produced books of accounts (Cash Book) and filed statements in support of his claim. The cash Book and statements are verified. Verification of the cash book and statement revealed that there are discrepancies in the figure furnished in the statement with reference to cash book (closing balances). Such discrepancies are as under: Name of the Bank As per cash book As per statement Interest Closing balance Closing balance paid (Rs) (Rs) Rs. Centurion Bank 3,16,082 3,32,781 52,230 Cholamandalam Loan 3,97,151 3,63,704 64,937 Account
Citi Bank 2,87,369.83 3,51,128 46,473 Citi Bank Nil 1,54,405 23,008 ICICI Bank 1,28,573 5,91,926 55,180 KMPL 24,913 52,830 14,490 ICICI Bank Finance Nil 3,86,846 55,940 Total 3,12,258
Interest paid on the above loans (where discrepancies are there with reference to book and statement) are amounting to RS.3,12,258/-. The addition to this extent be sustained and with regard to balance interest paid and using of loan for business purposes may be decided on merits.”
The CIT(Appeals) after considering the remand report and assessee’s rejoinder, observed that in the remand report the AO has conceded that interest paid to the extent of Rs.3,12,258 which do not pertain to AY 2009-10 are disallowable. The interest to the extent of Rs.9,62,473 pertaining to AY 2009-10 was allowable. The CIT(A) therefore allowed the deduction of interest to the extent of Rs.9,62,473 out of Rs.12,74,731.
In the appeal before us, the ld. counsel for the assessee submitted that the assessee had claimed deduction of interest of Rs.12,74,731 and the same was disallowed for want of details. In the course of remand proceedings, the assessee produced books of account and statement in respect of interest paid and the same was verified by the AO. The AO noticed that there were discrepancies in the closing balances of loans as per cash book and statement issued by banks. The interest paid on loans where there was discrepancy comes to Rs.3,12,258 to which the AO was of the opinion that it should be sustained. With regard to the balance, the AO was satisfied as he has reported that the issue may be decided on merits. The ld. counsel for the assessee submitted that the entire interest claim of Rs.12,74,731 requires to be allowed, as the entire amount was for business purposes and in so far as the discrepancies reported by the AO are concerned, it is with respect to closing balance as per the books and the statements of loan from the banks, which does not relate to allowability of interest.
Having considered the rival submissions and the material on record, we are of the view that the closing balance of the loans as per the cash book and the statements issued by the banks is not relevant to the issue of deciding whether the borrowed funds have been applied for business purposes. However, in the interest of justice, we are of the view that one more opportunity is to be provided to the assessee to establish its claim before the AO. Accordingly, we set aside the order of the CIT(Appeals) on this issue and remit the same to the file of the Assessing Officer to examine whether the borrowed funds have been utilized for business purposes and decide the issue in accordance with law, after providing opportunity of being heard to the assessee. Therefore, this issue is allowed for statistical purposes.
As regards the ground raised regarding levy of interest u/s. 234A, 234B and 234C of the Act is concerned, the AO is directed to give consequential effect.
In the result, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 20th day of July, 2016.