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Income Tax Appellate Tribunal, MUMBAI BENCH“C”, MUMBAI
Before: SHRI G.S PANNU & SHRI PAWAN SINGH
O R D E R PER PAWAN SINGH, JM: 1. These two appeals filed by assessee against the order of CIT(A) dated 11.06.2010 and dated 15.06.2010 in respect of AYs 2005 – 06 and AY 2006-07 respectively, were heard together and are being disposed of by common order. In appeal the assessee raised the following grounds: (1). CIT(A) erred in law and facts in not appreciating that order passed by assessing officer under section 143(3) read with section 153A of the act is incorrect and bad in law (2). CIT erred in law and on facts and not appreciating that assessment order, remand proceedings as well as the appellate order was passed without complying with the principal of natural Justice. (3) CIT(A) erred in confirming the addition under section 68 of the Act on account of loan of Rs. 10,00,000/- taken from Shewta Trading Corporation.
(4) CIT(A) added in confirming the addition under section 68 of the Act on account of loan of Rs. 98,030/- Umreshi Gala (inadvertently shown as loan from Barony financial consultancy Ltd) (5) CIT(A) erred in law in confirming the addition under section 68 of the Act on account of loan of Rs. 70,000/- taken from Rohini international. (6) CIT (A) erred in law in confirming disallowance of various expenses aggregating to Rs 29,186/- (7) Confirming the disallowance interest of Rs.7, 53,707/- made by AO.
Brief facts of the case are that search and seizure operation under section 132 of the Act was conducted on 20th April 2006 at the residential premises of the directors/partners / related persons belonging to the Prime and Neptune Group of cases. The residential premises of the assessee were also covered in the operation. Assessee was served a notice under section 153A dated 12 December 2006. In response to the said notice the assessee filed return of income declaring total income of Rs. 19,59,780/- on 17 January 2007, which includes a sum of Rs. 3,71,000/- which was disclosed under section 132(4) of the act on account of purchase of property, payments to parties, etc. The AO while making assessment under section 143(3), read with section 153A, made various addition of Rs. 12,68,030/- under section 68 of the Act, disallowed various expenses of Rs. 29,186/- and further disallowed interest of Rs. 7,53,707/- in the assessment order. Aggrieved by which assessee filed appeal before CIT(A). CIT(A) after hearing the submission of assessee deleted the addition of Rs. 1,00,000/- under section 68, and confirmed all other additions and disallowance of expenses and interest in the impugned order against which the assessee approached us.
We have heard the rival contention of the parties and perused the material available on record. During the hearing of arguments AR for assessee made the statement that assessee do not want to press Ground No. 1 and 2 raised in the present appeal. Hence, ground number 1 and 2 are dismissed as not pressed.
Ground No. 3 to 5 is related with various additions under section 68 of the Act. The AO made the following addition under section 68, in respect of unsecured loans appearing in the balance-sheet of the assessee. a. M/s Shweta trading Corporation Rs.10,00,000/- b. M/s Bharani financial consultancy Ltd. Rs. 1,00,000/- c. M/s Rohini international corporation Rs. 70,000/- d. Barony financial consultancy Ltd Rs. 98,030/- ------------------ Total Rs. 12,68,030/- 5. While making the addition under section 68 of the Act. The AO concluded that no confirmation was filed by the assessee; the onus was upon the assessee to establish the identity, creditworthiness and genuineness of the transaction. The onus has not been discharged by the assessee and alleged loan aggregating to Rs. 12,68,030/- was added back to the total income of the assessee. Ld CIT while considering this ground called the remand report from AO. AO submitted his report dated 26thApril 2010. After considering the report of AO, the addition of Rs. 1 lakh in respect of loan transaction of M/s Bharani financial consultancy Ltd was deleted and remaining addition was sustained. While confirming/ sustaining other additions, CIT(A) concluded that the assessee received loan of Rs. 10 lacs from Shweta Trading Corporation, Rs. 70,000/- from Rohini International and Rs. 98,030/- from Bharani Financial Consultancy. The assessee had stated that the loan has been taken through account payee cheques, and the same is reflected in the bank account of assessee. The assessee has not produced the confirmation of party in respect of Rs.10 lacs and the amount is still due to the party. The assessee failed to file the confirmation of these parties during assessment proceeding and even during appellate proceedings Therefore, the assessee failed to prove the identity of the creditor, their creditworthiness and genuineness of the transaction and thus confirmed the additions of Rs. 10 lacs, Rs. Seventy thousand and Rs. 98,030/-u/s 68 of the Act.
We have considered the order of AO as well as of CIT (A). The AR of assessee argued that assessee was not given sufficient and proper opportunity by AO file the document regarding the confirmation, genuineness of transaction, identity and creditworthiness of the creditor. It has been contended that the loans were arranged through M/s Bharani Financial Consultancy Ltd, who was the broker. The limited plea of the assessee is that the matter may be restored to the file of AO for verification of the three loans from M/s Sweta Trading Corporation, Umreshi Gala and Rohini International. Ld DR for has not seriously opposed the plea of assessee. Therefore, we deem it fit and proper to restore the matter back to the file of AO for appropriate verification. The assessee shall satisfy the AO regarding the nature and source of the impugned credit and the AO shall examine the issue afresh as per law. Thus on Ground No 3 to 5, assessee succeeds for statistical purpose.
Next ground (Ground No.6) for our consideration is disallowance of various expenses. Aggregating to Rs. 29,186/-. The AO while making disallowance of various expenses on account of motorcar depreciation, conveyance expenses and miscellaneous expenses concluded that assessee has not filed complete supporting evidence and is not filed any details to prove that the entire expenditure had been laid down for the purpose of conducting the business. The AO made an ad hoc disallowance at the rate of 10% of the expenses claimed. CIT(A) while dealing with this addition, confirmed the addition on the similar lines at concluded by AO. Though no justification for basis of disallowance at the rate of 10% of the total expenses was given either by AO or by Commissioner of appeal. We have also considered the order of AO as well as Commissioner of appeal and perused the record. The assessee has not filed even a single document to substantiate his claims for the expenses claimed. The assessee has not given the registration number of car, copy of registration certificate, date of purchase of car or its model or manufacturer. No reason is given as to why these documents were not filed before the authorities below or even before us. A simple argument was laid before us that ad hoc disallowance is not sustainable.
However, keeping in view the fact and circumstances that assessee is engaged is business activity, we deem it fit and proper that the disallowance of expenses be reduced to 50%. Thus this ground of appeal
is partly allowed in favour of assessee.
9. Next ground (Ground No. 7) for our consideration is disallowance of interest of Rs. 7,53,707/-. The AO while making the disallowance of interest concluded that assessee has not furnish any evidence to indicate that interest expenditure was incurred for the purpose of earning the professional income declared in M/s Shreya Consultancy. AO further concluded that there are various parties whose name does not figure in the list of unsecured loans but interest has been allegedly paid. Some such parties are Chimanlal U Shah, M/s streamline builders, Manjula Gala, Mr/ Neha Pharma, Aruna Patel, M/s Kamdhenu Agro etc. The assessee has not filed confirmation letter from these party regarding such interest payment and thus disallowed the interest amount. Commissioner of appeal while dealing with this ground concluded that assessee has not furnished any evidence to indicate for the purpose of earning the professional income of Rs. 28,10,000/-declared by assessee.
The assessee explanation is vague and not supportive evidence was filed and thus confirmed the disallowance. 10. We have considered the rival contention of AR parties and perused the order of authorities below. The assessee is claiming that he has availed loan from various parties but no confirmation, identity, and creditworthiness of creditor was proved by the assessee. We have already restored the Ground No. 3 to 5 to the file of AO with regard to addition u/s 68. Thus this Ground of appeal is also restored to the file of AO, with the direction to examine this ground along with ground no. 3 to 5. Hence, this ground of appeal is also allowed for stastiscal purpose.
11. With the above observation the present appeal is partly allowed.
12. Now we shall take up appeal wherein the assessee has raised five basic grounds of appeal: i. CIT (A) has erred in law and facts not appreciating that the order passed by the AO under section 143( 3), read with section 153A of the act is incorrect and bad in law. ii. CIT(A) has erred in law and facts not appreciating that the assessment order, remand proceedings as well as appellate order was passed without complying with the principal of natural Justice. iii. Addition of Rs. 7, 00,000/- u/s 68 of the Act. iv. Disallowance of various expenses of Rs. 34,624/- v. Disallowance of interest of Rs. 1,66,209/-
13. During the course of hearing AR for assessee made the statement that assessee do not press Ground No.(i) &(ii) raised in the present appeal. Hence, Ground (i) and (ii) raised in the present appeal are dismissed as not pressed.
14. Ground (iii) is in respect of addition under section 68 of the Act. The AO while making assessment observed that unsecured loan of Rs. 7 lakh is appearing in the balance-sheet of the assessee obtained from one Smt Gita Kadakia. The confirmation letter filed by assessee with regard to the said transactions does not give the complete address and pan number of the creditor. The assessee could not establish the identity/creditworthiness and genuineness of the connection has the LS loan of Rs. 7 lakh was added to the total income of the assessee under section 68 of the act. During appellate proceedings before CIT(A), it was explained by the assessee that balance- sheet filed by the assessee reflect the loan from Smt. Gita Kadakia amounting to Rs. 7 lakh. The assessee officer has not obtained any detail from the creditor by serving notice under section 131. And the assessee with persistent effort obtained confirmation letter, affidavit, PAN number, bank statement and evidence in support of bank statement reflecting the source of loan given to the assessee. CIT(A) on request of assessee admitted additional evidence filed before him and called the remand report from AO. AO submitted his report dated 26 April 2010. Wherein it was submitted that the summons under section 131 of the Act was issued by AO, to creditor to verify genuineness of the transaction. The summons sent by speed post was written back with the remark not known; hence the genuineness of the transaction is not proved. A copy of remand report was provided to the assessee to submit his objection but despite giving an opportunity neither assessee nor his AR attended the proceeding. Commissioner of appeal decided the matter on the basis of material available on record. The Commissioner of appeal concluded that it is an admitted fact that the assessee has received loan of Rs. 7 lakhs from Smt. Gita Kadakia. During the assessment proceeding, confirmation of Smt Geeta Kadakia was filed, but this confirmation does not have the address of the creditor, and PAN number. Therefore, AO has not accepted the credits as genuine and made addition under section 68 of the Act. The assessee has now filed affidavit of Smt. Gita and had intimated her PAN No.. ARYPK9520G and also stated that the loan of Rs. 7 lakh was given by her out of the amount received due to death maturation LIC policy of her husband. Her husband expired on 28 April 2005. See has also solemnly affirmed that she has not filed return of income but having PAN number. The loan is still outstanding and not repaid and confirmed the addition made by AO.
The assessee has now filed the copies of those documents in the forms of the paper book on record including an affidavit of Smt. Gitaben Vasant Kadakia. The contents of affidavit disclose that she has given a cheque of Rs. 2.5 lakh, Rs.3.25 lakh and Rs.1.25 lakhs to assessee. Said Gitaben also confirmed that Shri Premal Parekh/assessee is liable to return to Rs. 7 lacs as a family loan. Along with affidavit the deponent, filed copy of her Bank pass book along with the details of insurance claim received by her against the policy in the name of husband. The documents were filed only on 24th August 2015 for the date of hearing on 2nd September 2015. Along with the document, a certificate, certifying that all those document was filed before the authorities below. As per our opinion these documents are sufficient to prove the identity, creditworthy and genuineness of creditor, hence this Ground of appeal is allowed.
16. Ground No. (iv) is with regards to disallowance of various expenses of Rs. 34,624/-. This issue is identical to the ground number (6) of Appeal 5835/M/ 2010, wherein the similar / identical issue is partly decided in favour of assessee, hence, this i ground is also partly allowed in favour of assessee on similar lines.
17. Ground No.(v) for our consideration is disallowance of interest of Rs. 1,66,209/- the AO while making assessment observed that in the profit and loss account of M/s Shreya consultancy, the assessee has debited a sum of Rs. 1,66,209 /-on account of interest. The assessee was asked to furnish party wise details of the interest paid and explained the allowablity of interest debited to profit and loss account, by establishing the nexus between the interest expenditure claimed with the earning of professional income of Rs.20,85,000/-the assessee filed his reply dated 4 May 2007, enclosing copy of Ledger account in respect of interest of loan. The aggregate of the alleged interest payment appearing the Ledger account works out to Rs. 9,19,916/-. In assessment year 2005-06, interest of Rs. 7,53,707/-paid to these same party had been disallowed (Confirmed by us). However, the party wise breakup of interest of Rs. 1,66,207/-debited to the P and L account of Shreya consultancy has not been furnished. It was further observed by the AO that assessee has taken secure loan of Rs. 86,23,833/-and unsecured loan of Rs. 109,72,731/-. As against the same, the major assets declared are the flat at Ville Parle, investment made in certain companies and advance, for Flat at Prime Avenue. And concluded that this indicate that borrowed capital in respect of which interest is claimed had been invested in a residential flat or for the purpose not related to business of assessee. The AO also noticed that in Ay 2005-06 when the return, had been filed prior to search action, the assessee had claimed a whooping sum of Rs. 7,53,707/-on account of interest. This was disallowed by the AO. For this year under consideration, the interest debited to profit and loss account is far less. The assessee also claimed exempt income in the year under consideration to the extent of income as capital investment in partnership firm. Assessee failed to explain the interest expenditure and thus it was added back to the income of assessee. Before commissioner of appeal, the assessee tried to explain that interest expenses of Rs. 1,66,209/-was paid against the income from M/s Shreya Consultancy and has been paid on the loan which has been for the purpose of business. The Ld. CIT(A) also concluded that the assessee failed to establish that Loan has been taken for the purpose of consultancy business. The name of parties
from whom the loan has been taken and interest has been paid has not been disclosed by the assessee either before AO or before commissioner of appeal. We have noticed that even now, the assessee has not disclosed as to whom such interest was paid for the exigencies of business. We have also confirmed the disallowance of interest for AY 2005-06. Even the affidavit of Smt Geeta Kadakia does not disclose that any interest is payable to her by assessee. The assessee failed to explain the nexus of interest for the purpose of his business before us, hence this ground of appeal is dismissed.
18. In the result, both the appeals of the assessee are partly allowed. Announced in the open court on 30th day of June 2016. Sd/- Sd/- G.S.PANNU PAWAN SINGH (Accountant Member) (Judicial member) S.K. P.S. dt. 30.06.2016 Copy of the Order forwarded to :