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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 24/10/2024 Date of Order – 25/10/2024
O R D E R PER K.M. ROY, A.M.
The present appeal has been filed by the assessee challenging the impugned order dated 25/10/2023, passed by the learned Commissioner of Income Tax (Appeals)M National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2017–18.
In its appeal, the assessee has raised following grounds:–
“1. Whether on the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) was justified in upholding the addition made by the Assessing Officer without properly adjudicating the case on merits. 2. Whether on the facts and circumstances of the case, the Commissioner of Income Tax Appeals was justified in affirming addition
2 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 of Rs. 2,47,11,521/- and Rs 50,71,596/ by the learned Assessing Officer as unexplained money under section 69A of the Income Tax Act, 1961 3. Whether on the facts and circumstances of the case, the Commissioner of Income Tax Appeals was justified in affirming addition of Rs. 75,00,000/- by the learned Assessing Officer as unexplained cash credits under section 68 of the Income Tax Act, 1961.
4. Whether on the facts and circumstances of the case, the Commissioner of Income Tax Appeals was justified in affirming disallowance of expenditure to the tune of Rs. 8,33,239/- by the learned Assessing Officer 5. The Appellant craves leave to add or alter any other ground that may be taken at the time of hearing.”
In this case, the assessee is a jeweller by profession and has been regularly filing its income tax return and getting his books of account audited. Even for the current year, the assessee has duly filed his return of income and got his books of account audited. Post filing a original return, a revised return was also filed by the assessee on 25/01/2019 declaring total income of ` 54,50,000, and current year business losses of ` 1,79,27,518. The Assessing Officer assessed the total income at ` 4,27,33,117, by making several additions, which we proceed to adjudicate on merit below:–
Ground no.1, being general in nature, hence no separate adjudication is required.
Ground no.2, relates to the addition of ` 2,47,11,521/- and ` 50,71,596, made by the Assessing Officer on account of unexplained cash credits under section 69A of the Income Tax Act, 1961 ("the Act")
For the year under consideration, the Assessing Officer has made addition to the tune of ` 2,97,83,117, under section 69A of the Act and added
3 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 the peak cash credit of two personal savings accounts of the assessee maintained with TJSB Sahakari Bank Ltd. and Bank of India. The Assessing Officer in its assessment order has discussed the issue mentioned in Para–9 to 11.4, wherein he has mentioned that the credits in these two accounts have remained unexplained and unsubstantiated.
Insofar as ground no.3, is concerned which relates to addition of ` 75,00,000, made by the Assessing Officer under section 68 of the Act on account unexplained cash credit.
On this issue, the Assessing Officer contended that the assessee has not filed confirmatory statement of 3 lenders namely Dharmendra Manwani (HUF) (` 50 lakh), Shri Prakash Alimchandani (` 15 lakh) and Ms. Nirmaladevi Khandelwal (` 10 lakh). The assessee submitted almost all the details which were sought by the Assessing Officer only few unsecured loan confirmations could not be furnished as the same were not available with the assessee during eh assessment proceedings. The Assessing Officer made addition to the tune of ` 75 lakh as unexplained cash credit under section 68 of the Act.
The next issue which arose out of ground no.4, relates to interest under section 36)\(1)(iii) of the Act.
The Assessing Officer disallowed a part of the interest considering it as interest on capital not borrowed for the purpose of business on proportionate basis. The assessee had debited ` 34,15,880, on account of interest on unsecured loans of ` 1,81,14,226. The Assessing Officer considered 24.39 per
4 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 cent of the interest debited to Profit & Loss Account as not belonging to the business and accordingly made addition by calculating proportionate interest to the tune of ` 8,33,239, out of the total interest of ` 34,15,880. The Assessing Officer also made addition of ` 877, pertaining to interest on late payment of TDS.
The assessee being aggrieved with the decision of the Assessing Officer on all the above three issues, filed appeal before the first appellate authority, wherein the learned CIT(A) has dismissed the appeal of the assessee. The observations of the learned CIT(A) are given below:–
“Examination of the issue and decision: 6.1 Ground No. 1: Addition of Rs 2,47,11,521/-, peak credit in TJSBB622 account, u/s 69A of the Act and Ground No 2: Addition of Rs 50,71,596/-, peak credit in BOI account, u/s 69A of the Act.: I have gone through the facts of the case, assessment order and the written submissions made by the appellant. The appellant has not submitted any document / evidence in support of the ground of appeal taken. It is pertinent to mention here that after receiving notice on 16/01/2019, appellant revised the return of income on 25/01/2019, in which business losses were enhanced. 6.2 It is seen that the AO has made the addition during assessment proceedings, as the assessee failed to justify the details of the transaction and further tried to shift the onus on AO by claiming that no specific query was made in this regard. Hence details of the transactions of saving account were not submitted. Further it can be seen from assessment order, notice was served to assessee on 16/01/2019, mentioning reasons for opening of assessment and calling for various details in regard to reasons for opening of assessment. 6.3 I do not agree with the contention of the appellant as assessee is duty bound to record all transactions happening pertaining to business in books of account and justify all the transactions which have been recorded in the books of account. Further AO has clearly mentioned all the reasons for making the addition and appellant has not submitted any new or concrete document/ evidence in his support. Hence, I don't find any reason to intervene in the order of AO and confirm the addition of Rs.2,47,11,521/- and Rs 50,71,596/- and dismiss these grounds of appeal. 6.5 Ground No 3: Addition of Rs.75,00,000/-, unsecured loans, u/s 68 of the Act: I have examined appellant's submission and during appellate proceedings
5 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 no new document / evidence has been submitted in this regard. The AO has clearly mentioned in assessment order that assessee failed to prove creditworthiness and genuineness of these transactions so addition was made. I don't agree with the contention of the appellant that loans were taken for a short duration and repaid during the same year because in such a scenario, creditworthiness and genuineness of these transactions has to be proved beyond doubt and the onus lies on assessee. The Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (1985) 154 ITR 148 (S.C) has observed that:- "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. 6.6 In view of the discussion made in above paras, I find no reason to intervene in the order of the AO and confirm the addition of Rs.75,00,000/-. This ground of appeal is dismissed. 6.7 Ground No 4: Disallowance u/s 36(1) (iii) to the tune of Rs.8,33,239/-. I have examined the submissions made by appellant. The appellant has paid interest on unsecured loans. In this regard, the assessee failed to submit the justification to the queries raised by the AO. During appellate proceedings, the appellant has not submitted the justification / documents/ evidence in this regard. In view of the discussion made in above paras, I find no reason to intervene in the order of the Assessing Officer and confirm the addition of Rs 8,33,239/-. This ground of appeal is dismissed. In the result, appeal of the assesee is dismissed.”
Before us, the learned Counsel, Shri Mahavir Atal, appearing for the assessee, furnished a detailed Paper Book containing the following documents:–
Sr. Particulars Page no. no. 1. ITR and computation of income 1 – 6 Audit report and financial statements of Khandelwal 2. 7 – 31 Jewelers (Proprietorship firm of the assessee) 3. Notice issued during the assessment proceedings 32 – 47 4. Submissions before the CIT(A) 48 – 60 Application for admitting additional evidence filed 5. 61 before the CIT(A)
6 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023
Entry–wise explanation of each credit in the bank of 6. 62 – 85 the assessee 7. Bank statement of the assessee with TJSB Bank 86 – 89 8. Bank statement of the assessee with BOI 90 – 98 Ledger confirmation of KJAPL for Ravindra Khandelwal 9. 99 – 104 in personal capacity Ledger confirmation of Nitin Khandelwal for Ravindra 10. 105 Khandelwal in personal capacity Ledger confirmation of Nitil Khandelwal for Khandelwal 11. 106 Jewelers
He drew our attention to the examination of issues and decisions noted by the learned CIT(A) in its order. The learned Counsel made following submissions in support of the claims so made by the assessee:–
“Addition of Rs. 2,97,83,117 as unexplained money under section 69A For the year under consideration, the Assessing Officer ('AO') has made an addition to the tune of Rs. 2,97,83,117 under section 69A. The AO has added the peak cash credit of two personal savings accounts of the assessee maintained with TJSB Sahakari Bank Limited and Bank of India. 1.2 In this regard, the assessee most humbly wishes to submit that these two bank accounts are personal savings accounts of the assessee having no connection with the business of the assessee. 1.3 The AO in the order issued dated 30 December 2019 has discussed the issue mentioned above in para 9-11.4, wherein he has mentioned that the credits in these two accounts have remained unexplained and unsubstantiated. 1.4 The assessee most humbly wishes to submit that the assessee had submitted the bank statements of these two accounts before the AO. However, the AO had not raised any queries directing the assessee to explain the credit appearing in the bank statements. The AO had issued several notices. We have attached the notices herewith as annexure C for case of reference. The details of the same are provided below. Notice under section 143(2) dated 9 August 2018 as annexure C.1 Notice under section 142(1) dated 16 January 2019 as annexure C.2 Notice under section 143(3) dated 28 June 2019 as annexure C.3 Notice under section 143(2) dated 29 September 2019 as annexure C.4
7 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023
Show cause notice dated 29 November 2019 as annexure C.5 1.5 We most humbly wish to submit that the AO has not asked for the details of credit entries as per the two bank statements mentioned above. This fact can be verified from the notices issued. 1.6 Even in the show cause notice dated, 29 November 2019, the AO has not asked for the details. The AO has made an arbitrary addition on this account without giving assessee an opportunity of being heard and violating the principles of natural justice. 1.7 Nevertheless, the assessee is hereby submitting the details of nature and source of all the major transaction carried out through these two bank accounts. The transaction type wise brief details of the transactions is mentioned below. Remuneration received from Khandelwal Jewellers Akola Private Limited ('KJAPL) - The assessee has received remuneration to the tune of Rs. 36,00,000 from KJAPL. The same has been duly considered while computing the income of the assessee for the year under consideration. This fact can be verified from the computation of the income of the assessee is attached herewith as annexure B. Remuneration received from Ganpati Moulders Private Limited The assessee has received remuneration to the tune of Rs. 20,00,000 from KJAPL. The same has been duly considered while computing the income of the assessee for the year under consideration. This fact can be verified from the computation of the income of the assessee is attached herewith as annexure B. Receipt pursuant to the payment of expenses on behalf of KJAPL - The assessee's proprietorship concern is almost a five-decade old concern. Considering the new model of business, it was decided to incorporate a new private limited company for succeeding, the business of the assessee. Accordingly, a new private limited concern, named M/s Khandelwal Jewellers Akola Private Limited was formed, wherein all the shares are held by the assessee's family. KJAPL being a new private limited company did not have any history to mobilise the funds from the bank. Therefore, during the initial years of the company, shareholders borrowed loans in personal capacity and advanced the same to the company. Accordingly, whenever there was a cash crunch in KJAPL, KJAPL turned to the assessee for help. The assessee helped by paying the expenses on behalf of KJAPL. K.JAPL repaid the amount to the assessee as per the availability of cash. The credits pursuant to these repayments are also reflected as credits in the bank accounts of the assessee and included in the peak cash credit. The ledger of the assessee is books of KJAPL is provided herewith as annexure D for your kind perusal. Your kindness may also appreciate that KJAPL is subject to audit u/s 44AB of the Income Tax Act, 1961. Repayment of loan given to KJAPL - As explained above KJAPL did not have a lot of options of financial and credit facilities. The assessee has 8 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 given loans to KJAPL. KJAPL repaid the amount to the assessee as per the availability of funds. The credits pursuant to these repayments are also reflected as credits in the bank accounts of the assessee and included in the peak cash credit. The ledger of the assessee is books of KJAPL is provided herewith as annexure D for your kind perusal. Your kindness may also appreciate that KJAPL is subject to audit u/s 44AB of the Act. Even from the perspective of applicability of deemed dividend, the assessee always had credit balance in the books of KJAPL. The amount received by him from KJAPL was out of the existing credit balance. Hence, the question of applicability of deemed dividend doesn't arise. Unsecured loans taken in personal capacity The assessee has taken unsecured loans in personal capacity from friends and family during the year under consideration. As discussed above as well, the loans were in turn used to support the business of the assessee through KJAPL. This was required to be done as companies are not allowed to borrow from general public. Hence, the assessee has borrowed funds in personal name and introduced these funds in the business of KJAPL from time to time. The assessee had already submitted the confirmations from these people before the AO. Withdrawals from the proprietorship firm The assessee is also engaged in the business of jewellery through a proprietorship firm under the name and style of M/s Khandelwal Jewelleries. The assessee has made multiple withdrawals from the proprietorship firm into his personal savings account. The credits pursuant of the same are also reflected in the personal bank account of the assessee. The amount received are out of the capital of the assessee in the proprietorship firm including net profit for the period. The proprietorship firm of the assessee is subject to audit u/s 44AB of the Act. The income from the proprietorship firm has been duly accounted for while calculating the income of the assessee. This fact can be verified from the computation of income of the assessee. Receipt on account of sale of plot - The assessee has sold a plot of land during the year under consideration earned capital gain to the tune of Rs. 19,03,076. The same has been duly accounted for while calculating the income of the assessee. This fact can be verified from the computation of income of the assessee. Interest income The assessee has also earned interest from bank and interest income on unsecured loans advanced. The same has been duly included in the income of the assessee. 1.8 Since, the assessee has taken effect of all the credits in computation of income and has duly paid taxes on the same. Hence, the addition with respect to peak cash credits is purely based on conjecture and surmises. 1.9 The AO has invoked peak cash credit theory. The theory can only be resorted when an explanation was sought by the AO and the assessee
9 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 failed to explain the nature of credits to the satisfaction of the AO. In the given case, the AO has not directed the assessee to explain the credits appearing in the personal saving bank account. However, the assessee is hereby submitting the line-by-line and transaction-wise details regarding the same as additional evidence. 1.10 Hence, we most humbly wish to submit that the addition made by the AO on the basis of peak cash credits is unwarranted and doesn't fit with the true nature of transactions. 1.11 We humbly request your kindness to please delete the addition made by the AO and oblige. We shall be happy to share all and any documentation as directed by your kindness, if any.
2. Addition of Rs. 75,00,000 as unexplained cash credit under section 68 2.1 The AO has made an addition to the tune of Rs. 75,00,000 under section 68 as unexplained cash credits. This has been discussed by the AO in para 14 of the assessment order. 2.2 The AO has made addition under section 68 on account of credit received from 3 people viz.
Dharmendra Manwani HUF - Rs. 50,00,000 II. Prakash Alimchandani - Rs. 15,00,000 Nirmala Devi Khandelwal - Rs. 10,00,000 2.3 The assessee most humbly wishes to submit that in case of party I and II, the loans were taken for a short period of time. This can be substantiated by the fact that the loans were repaid during the same financial year. The same can be verified from the ledger of parties in books of account of the assessee. 2.4 In case of party I, the assessee has paid interest to the tune of Rs. 67,833 and duly deducted of Rs. 6,783. In case of party II, the assessee has taken and repaid the loan in a very short period of time and hence, no interest has been paid on the same. Consequently, no TDS has been deducted on the same. 2.5 The fact that the assessee has repaid the money in itself draws the proposition that the addition under section 68 is unwarranted. Further, the Income-tax act mandates taxing of 'income'. Since, the assessee has received and repaid the loan amount within the same year. It can't be assumed to be as an income earned by the assessee. 2.6 In addition, we wish to bring to the attention of your kindness that the assessee has not enriched from the transaction. It is a simple transaction of receiving and repaying the loan. It is a established principles that there can be no tax without enrichment.
10 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 2.7 Hence, the assessee requests your kindness to delete the impugned addition made by the assessing officer.
3. Disallowance of Rs. 8,33,238 made on account of interest on loan 3.1 The AO has made a disallowance under section 36(1) (iii) to the tune of Rs. 8,33,238. The same has been discussed in para 17 of the assessment order. 3.2 During the year under consideration, the assessee has taken loans for the purpose of business. The assessee has paid interest on these loans and deducted the same while computing business income for the year. 3.3 Sec 36(1)(iii) states, "The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28, inter alia, the amount of the interest paid in respect of capital borrowed for the purposes of the business or professio 3.4 It is pertinent to note that the AO has not disputed the fact that the assessee has used the loans obtained for the purpose of business. No queries were raised by the AO in this respect. This fact is evident from the discussion in the para 17 of the order made by the AO. 3.5 The AO has made an arbitrary addition of Rs. 8,33,238 on the interest duly used for the purpose of business. The disallowance as calculated by the AO is provided below. A. Interest Debited in P&L account Rs. 34,15,880 B. Interest claimed under any other deduction - Rs. 1,05,87,606 C. Total interest claimed - Rs. 1,40,03,486 D. Percentage of A to C-24.39% (i.e., 34,15,880/1,40,03,486) E. Disallowance calculated - 25.39% of 34,15,880 3.6 The assessee most humbly wishes to submit that the calculation made by the AO does not make any sense. The AO has compared the interest debited in P&L account to the total interest claimed and then disallowed the proportionate loan debited in P&L account. The addition made by the AO is unreasonable, illogical, irrational and absurd. 3.7 We further wish to submit that the assessee's books of account were audited as per the provisions of the Act. The AO has accepted the books of accounts and has not brought any material on record to dispute the same. 3.8 Since, the AO has not been able to bring any material on record proving that the loans were used for the purpose other than business. Moreover, the calculation of disallowance is baseless. Hence, we humbly
11 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023 request your kindness to please delete the disallowance made by the AO.”
No doubt, the impugned order passed by the learned CIT(A) is cryptic and the appeal has been dismissed in a perfunctory manner without any application of mind. The learned CIT(A) should have admitted the additional evidences. We also find that the learned CIT(A) did not embark upon any enquiry under section 250(4) of the Act. Moreover, the casual way of dismissing the appeal of the assessee is nothing but a travesty of justice. Although, the learned Departmental Representative, Shri Sandipkumar Salunke, Commissioner of Income Tax, vociferously argued that the concurrent findings of the authorities below which, in our considered opinion, need not be disturbed, as there is no logic to countenance with the same. On the other hand, the learned Counsel prayed for granting relief also cannot be out–rightly accepted in view of inadequate fact finding and lackadaisical approach adopted by the authorities below in dispensation of justice. At the same time, we cannot be oblivious to the fact that almost a year has been passed since the occurrence of the financial transactions. Keeping in mind about the peculiarity of the disputes, we set aside the impugned order passed by the learned CIT(A) and restore the entire matter to the file of the Jurisdictional Assessing Officer to examine the additional evidences and to carry out a fresh assessment after providing effective opportunities to the assessee. Needless to mention here that the assessee must be vigilant and co–operative to adduce all the evidences and documents before the adjudicating authority to buttress its claims.
12 Ravindra Madanlal Khandelwal ITA no.403/Nag./2023
In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 25/10/2024