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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI N.K. SAINI & SHRI A.T. VARKEY
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
The appeal in Commissioner of Income-tax (Appeals)-II, Meerut dated 10.12.2008 for the assessment year 2005-06 and the appeal in is filed, in the penalty proceedings, against the order of the Commissioner of Income-tax (Appeals)-II, Meerut dated 16.04.2010 for the assessment year 2005-06.
The assessee was deriving income from trading and manufacturing of rice. The return of income was filed by the assessee on 31.10.2005 declaring total income of Rs.10,284/-. The case was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter ‘the Act’). Later, the case was selected for scrutiny and notice u/s 143 (2) was issued on 08.09.2006. Notices u/s 142 (1) were issued. The AO completed the assessment by making certain additions and completed the assessment u/s 143 (3) of the Act on total income of Rs.13,00,814/-. In appeal, the order of the AO was partly confirmed by the ld. CIT (A). Now, the assessee, being aggrieved, is in appeal before us.
Grounds No.1 to 4 are against the advances / petty loans taken by the assessee and the grounds read as under :-
“1. The Learned Commissioner of Income Tax (Appeal) has erred in upholding an addition of Rs.3,50,000.00 received from Shri Neota Ram as advance by the assessee firm for which necessary evidences were produced before the Learned Assessing Officer and Learned Commissioner of Income Tax (Appeal).
2. The Learned Assessing Officer and Commissioner of Income Tax (Appeal) has erred in upholding an addition of Rs.75,000.00 received as petty loans from Shri Neota Ram when complete evidences as to the source of such loans were produced before the Learned Assessing Officer and Learned Commissioner of Income Tax (Appeal).
3. The Learned Commissioner of Income Tax (Appeal) has erred in upholding an addition of Rs.3,50,000.00 received from Smt. Urmila Rani as advance by the assessee firm for which necessary evidences were produced before the Learned Assessing Officer and Learned Commissioner of Income Tax (Appeal).
4. The Learned Assessing Officer and Commissioner of Income Tax (Appeal) have erred in upholding an addition of Rs.75,000.00 received as petty loans from Smt. Urmila Rani when complete evidences as to the source of such loans were produced before both the authorities.”
The assessee has received Rs.3,50,000/- as advance & Rs.75,000/- as petty loans each from the two persons, viz., Shri Neota Ram and Smt. Urmila Rani.
4.1 First we discuss the advances and petty loan received from Shri Neota Ram. The AO observed that the assessee had shown to have taken advance against sale of land from Shri Neota Ram amounting to Rs.3,50,000/-. The AO found that Shri Neota Ram had given an advance of Rs.3,50,000/- on 08.10.2004 and on the same date, before making withdrawal of the said loan, a cash of Rs.3,50,000/- was deposited in the said bank account. The AO observed that the family of Shri Neota Ram comprises of himself, wife, one daughter, two dependent sons and oneself dependent son. The AO had estimated the actual expenses of the family including the school and college fees of the sons and daughter at Rs.1,95,000/-. He further observed that Shri Neota Ram in his statement had admitted that his income was Rs.l,50,000/- to Rs.2,00,000/- per annum. The AO had computed the net agricultural income of the assessee at Rs.1,68,000/- per annum by taking such net income @ Rs.14,000/- per acre.
The AO further noticed that a sum of Rs.1,10,000/- had been given as margin money for purchase of car and such investment must had been made out of past savings because Shri Neota Ram had no other source of income. He further observed from the statement of Shri Neota Ram that the impugned advance had been given out of agricultural income, loans taken from friends and relatives and out of past savings but Shri Neota Ram could not furnish the names of the persons and the amounts of loans taken from friends and relatives in order to substantiate his contention regarding his capacity to advance the loan. Further, on examination of the bank account with Nainital Bank Ltd., Rudrapur, the AO found that the assessee had made repayment of advance of Rs.2,00,000/- through bearer cheque and also the said payment had been received by a person other than Shri Neota Ram and the remaining advance amount of Rs.1 ,50,000/- had been shown to be repaid in cash on various dates. Therefore, the AO held that the genuineness of advance had not been proved and the capacity of Shri Neota Ram to make the advance also did not stand established and, accordingly, the AO treated the entire amount of Rs.3,50,000/- as unexplained cash credit and the same had been added to the total income of the assessee. The ld. CIT (A) confirmed the addition by observing as under :-
“6.4 I have considered the above submissions of the counsel of the appellant, the facts mentioned in the assessment order and the remand report by the AO and the comments of the counsel of the appellant in respect of the remand report. It is observed that the appellant has claimed to have received advance against sale of property from Shri Neota Ram to the tune of Rs.3,50,000/-. The appellant has led the primary evidence like affidavit of the person making the advance, his bank account and other details regarding the source of income and his personal expenses. The A.O. has examined all these evidence and has finally concluded that the main income of the person concerned i.e. Shri Neota Ram, is agricultural income out of the land owned by him of 12 acres. The total expenses including the education expenses of the dependent children have been computed at Rs.1,95,000/- and since the appellant's income by way of agriculture was less than the said expenses, the A.O. has not accepted the creditworthiness of the person making such advance to the tune of Rs.3,50,000/-. Even though the person making such advance has taken the plea that advances were out of agricultural income and loans taken from friends and relatives and out of past savings, further details regarding the names of the persons and the loans taken from such third parties could not be furnished before the A.O. and therefore, in my 'view, the capacity of the person to make such advance of Rs.3,50,000/- remains unproved and therefore I uphold the action of the AO in treating such advance of Rs.3,50,000/- as unexplained and accordingly confirm the addition of Rs.3,50,000/- in the hand of the appellant as unexplained cash credit and no interference is called for in this respect. Hence ground No. (ii) is rejected.”
As regards petty loan of Rs.75,000/- taken by the assessee from Shri Neota Ram, the AO observed that the assessee had shown to have taken loans in small amounts from Shri Neota Ram on various dates aggregating to Rs.75,000/-, which had been recorded in the assessment order at page 6. Out of these loans received to the tune of Rs.75,000/-, the assessee had stated that it has repaid Rs.68,000/- during the year in cash. The AO observed from the statement recorded from Shri Neota Ram that no loans had been given to the assessee apart from the advance of Rs.3,50,000/-. Further, the A.O. while rejecting the genuineness of advance of Rs.3,50,000/- had already held that Shri Neota Ram did not have the capacity to advance such monies out of his actual income and the same rational applies here also because Shri Neota Ram had failed to establish his creditworthiness to advance further loans and accordingly, the loan of Rs.75,000/- had been treated as unexplained cash credit and added to the income of the assessee. The ld. CIT (A) confirmed the addition by observing as under :-
“7.4 I have considered the above submissions of the counsel of the appellant, the facts mentioned in the assessment order and the remand report by the AO and the comments of the counsel of the appellant in respect of the remand report. While adjudicating on ground of appeal No. (ii), it has been held that as regards the advance of Rs.3,50,000/- received from Shri Neota Ram, the said person did not have the capacity and creditworthiness to make such advance on the basis of evidence collected by the A.O. during the course of assessment proceedings. As far as the petty loans claimed to have received from Shri Neota Ram, the appellant has not been able to discharge its onus as regards the genuineness of such loans received in cash and repayment there of subsequently. Further, even though Shri Neota Ram has accepted about advancing the sum of Rs.3,50,000/- to the appellant he has refused to have given any loans to the appellant. Keeping, in view these facts and for the lack of creditworthiness in the hand of Shri Neota Ram, I am in agreement with AO's action in treating the purported loan of Rs.75,000/- as unexplained cash credit in the hand of the appellant and no interference is called for in this respect. Hence, ground No.(iii) is rejected.”
5. Ld. AR for the assessee reiterated the submissions made before the ld. CIT (A) and submitted that the assessee had during the relevant year received an advance of Rs.3,50,000/- from Shri Neota Ram against sale of land and an agreement in this regard was also executed amongst the said party. However since the deal could not materialize, the said amount was also later refunded to the said parties. Ld. AR submitted that Shri Neota Ram is a farmer and earned income from farming and sale of agricultural produce. He submitted that during the course of assessment proceedings, the statement on oath of Shri Neota Ram was recorded and he also confirmed having made the said advance to the assessee and having received it back during the year. He further submitted that apart from his own agricultural land holdings, Neota Ram had also taken on consideration / rent land of other parties for agricultural use for which necessary confirmation of other land owners were filed parties and the proof of their (land owners who have given land to Shri Neota Ram for cultivation) were also furnished before the AO. He submitted that the AO misunderstood the answers of Shri Neota Ram, and treated the advance as bogus. He drew our attention to Question 8 to the statement of Shri Neota ram on oath and confirmed that his net income after meeting out all his expenses came to around Rs.1.5 lakhs to Rs.2.00 lakhs, however, it was assumed by the AO to be the income before meeting the expenses. Ld. AR submitted that the income of Neota Ram was calculated at Rs.14,000 per acre for 12 acres at Rs.1,68,000/-. He submitted that while doing so, the AO conveniently ignored the fact that Shri Neota Ram was cultivating 24.50 acres of land and other land taken by Shri Neota Ram on Batai (kind of rent / consideration) from Shyam Lal and Ramesh Lal, who had furnished their confirmations and proof of agricultural holding and no further enquiries were conducted by the AO in this regard to disprove the said claim of assessee. He, therefore, submitted that the creditworthiness and availability of cash in hand was proved by the details furnished and also the assumptions of the authorities regarding the household expenses suffered from infirmities. Ld. AR pleaded that the addition be deleted.
5.1 As regards petty loans, the ld. AR submitted that the Neota Ram had also given petty loans to the assessee, which was confirmed by him by way of a clarification submitted during the course of the assessment proceedings. He submitted that the said loans were advanced to the assessee out of petty borrowings made by Neota Ram from his friends and necessary evidences in this regard were also furnished during the course of the assessment proceedings.
He pointed out that since no specific query was raised by the AO in the statement of Neota Ram, Neota Ram did not reply to have given the petty loans to the assessee. He emphasized that loans were given several times and it was repaid in short intervals and on given period, the petty loan never crossed Rs.15,000/- and so if telescoped the loan cannot exceed Rs.15,000/- and not Rs.75,000/- which is the aggregate amount which cannot be the addition anyway. He submitted that as the creditworthiness of the assessee was not in doubt and the necessary evidences were filed, he pleaded to delete this addition.
On the other hand, the ld. DR relied on the orders of the authorities below.
We have heard both the parties and perused the material on record. We find that the assessee in order to discharge the onus on it in respect to advance on sale of property from Shri Neota Ram has produced the creditor and the statement on oath has been recorded by the AO. He has also confirmed about the said transaction and has also stated before the AO that since the transactions could not be materialized, Rs.3,50,000/- has already been repaid. The Bank statement of Neota Ram has also been filed and the amount has been transacted to the assessee through banking channel only. In order to prove the creditworthiness, Neota Ram has stated that he is the owner of 12 acres of land and also he was cultivating another 24.50 acres of land which he has taken on rent/consideration from Shayam Lal and Ramesh Lal who in turn have confirmed the said fact. The AO has estimated that from one acre of land, the assessee might got Rs.14,000/- and so, he will be having Rs.1,68,000/- as his income whereas the assertion of Neota Ram that he was cultivating another 24.50 acres of land which has not been discussed by the AO and the CIT (A) also is silent on this aspect. We are of the opinion that since the assessee has been able to produce the person who has advanced the amount for sale of land and by submitting before AO that he was cultivating 36.50 acres of land (24.50 acres + 12 acres), so the averment of Neota Ram cannot be brushed aside without pointing out any infirmity in the statement given by him to prove his creditworthiness. Therefore, we are inclined to accept the transaction by assessee from Neota Ram. So, the addition on account of Neota Ram to the tune of Rs.3,50,000/- is hereby directed to be deleted.
7.1 As regards petty loans of Rs.75,000/- given by Neota Ram, we find from the order of the ld. CIT (A) that even though Shri Neota Ram has accepted about advancing the sum of Rs.3,50,000/- to the assessee but he has refused to have given any loans i.e. Rs.75,000/- to the assessee, which is evident from his statement reflected on page 18 of the CIT (A)’s order. Before us also, the assessee could not controvert this finding. However, we take note that Rs 75000/- was the aggregate amount of petty loan which has been received and repaid according to assessee, and the petty loan at a given point of time never exceeded Rs 15000/- is taken into account, so we are of the opinion that an amount of Rs 15000/- is to be disallowed. The assessee partly succeeds.
Now, we discuss the advances and petty loan received from Smt. Urmila Rani. The AO observed that the assessee had shown to have taken advance against sale of land from Smt. Urmila Rani amounting to Rs.3,50,000/-. The AO observed that in this regard, the assessee had filed affidavit and copy of bank account of the concerned person. On examination of the same, the AO found that Smt. Urmila Devi has given an advance of Rs.3,50,000/- on 08.10.2004 and on the same date, before making withdrawal of the aforesaid advance, an amount in cash of Rs.3,50,000/- had been deposited in her bank account. The AO asked the assessee to produce Urmila Devi for examination, but she could not be produced on the ground that she was not in a position to appear because of her illness. The AO mentioned in his order that Smt. Urmila Devi was holding about 12 acres of land and the assessee could file evidence of sale of agricultural produce for a sum of Rs.70,560/- only. After considering the expenses on carrying out agricultural activities, the AO considered 50% of the receipts to be the net agricultural income. Even otherwise, by adopting Rs.14,000/- per acre, as net agricultural income annually, the AO estimated the net annual income at Rs.1,68,000/-. After incurring household expenses, since the balance amount left was not sufficient to make the impugned advance, the AO had not accepted the receipt of such advance as genuine and accordingly, he treated the amount of Rs.3,50,000/- as unexplained cash credit and added to the total income of the assessee. The ld. CIT (A) confirmed the addition by observing as under :-
“8.4 I have considered the above submissions of the counsel of the appellant, the facts mentioned in the assessment order and the remand report by the AO and the comments of the counsel of the appellant in respect of the remand report. It is observed that during the year under consideration, the appellant has shown to have taken advance of Rs.3,50,000/- against sale of land to Smt. Urmila Devi and the same has been repaid during the year under consideration. The appellant has led the primary evidence of affidavit of Smt. Urmila Devi, accepting the fact that she has advanced Rs.3,50,000/- to the appellant. Further the bank account of Smt. Urmila Devi has been produced which indicates that the said advance was given on 08.10.2004 and on the same date before making withdrawal of the aforesaid advance amount, cash of Rs.3,50,000/- was deposited in her bank account. The AO has mentioned that Smt. Urmila Devi is holding about 12 acres of land and the evidence of sale of agricultural produce has been furnished to the tune of Rs.70,560/- only. After meeting the expenses on agricultural activities, the net receipt from agricultural income is 50% of the gross receipts only. Even otherwise by adopting the net agricultural income of Rs.14,000/- per acre per annum, such annual income from 12 acres of land has been indicated at Rs.1,68,000/-. After incurring household expenses, it has been observed that Smt. Urmila Devi, the person making the advance will be hardly left with sufficient balance to make the impugned advance and accordingly the creditworthiness of the person making the advance has not been established and accordingly the A.O. has treated the impugned advance as unexplained cash credit in the hand of the appellant. In my considered view, even though the identity of the person making the advance has been proved, the creditworthiness to make such advance has not been established and accordingly the action of the AO in treating such advance as unexplained cash credit is hereby upheld and no interference is called for in this respect. Hence, ground No. (iv) is rejected.”
8.1 With regard to petty loans received from Smt. Urmila Rani, the AO observed that the assessee had claimed to have taken loans in small amounts from Smt. Urmila Devi on various dates to the tune of Rs.75,000/- . The AO observed that these loans had been shown to be repaid during the year under consideration itself. The AO had asked the assessee to produce Smt. Urmila Devi, but because of her illness she could not be produced to lead evidence as regards the purported loans given by her to the assessee. While making addition of Rs.3,50,000/- being the advance received from Smt. Urmila Devi, the AO held that she did not have the capacity to advance such monies or loans out of her known source of income. Due to these reasons, the AO held that Smt.
Urmila Devi did not have the creditworthiness to advance such loan and accordingly, loan amounting to Rs.75,000/- had been added to the income of the assessee. Ld. CIT (A) confirmed the addition by observing as under :-
“9.4 I have considered the above submissions of the counsel of the appellant, the facts mentioned in the assessment order and the remand report by the AO and further comments of the counsel of the appellant in respect of the remand report. It is observed that the appellant has shown to have accepted several loans from Smt. Urmila Devi aggregating to Rs.75,000/-. As per the clear cut finding of the A.O, as discussed while adjudicating on ground of appeal No. (iv), Smt. Urmila Devi did not have the capacity to advance the sum of Rs.3,50,000/- to the appellant. Similarly, the said person was not in a position to advance such loans from declared source of income as has been rightly pointed out by the 1\.0. Therefore, I am agreeable to the contention of the A.O. that such petty loans claimed to have been received by the appellant from Smt. Urmila Devi have not been substantiated and accordingly the action of the A.O. in treating such loan amount of Rs.75,000/- as unexplained cash credit is quite justified and no interference is called for in this respect and the addition of Rs.75,000/- is hereby confirmed. Hence, ground No. (v) is rejected.”
The ld. AR reiterated the submissions made before the ld. CIT (A) and submitted that Smt. Urmila Rani was not keeping well, therefore, she could not appear before the authorities below. He submitted that the affidavits of Smt.
Urmila Rani regarding the transactions undertaken by her were infact furnished.
He submitted that during assessment proceedings, AO assured that the statement of Smt. Urmila Rani would be taken by deputing an Inspector but the AO neither appointed any ITI nor any other person to take the statement of Smt. Urmila Rani. He submitted that the confirmations from Smt. Urmila Rani and proof of her land holdings in her name were also furnished. He submitted that Smt.
Urmila Rani is infact the sister-in-law of Shri Neota Ram and the farming of her land was done by Neota Ram, who would make the earnings on her behalf and hand it over to Urmila Rani. Accordingly, the ld. AR pleaded to delete this addition.
9.1 As regards loans aggregating to Rs.75,000/-, ld. AR reiterated the submissions made above in paragraph 9 and submitted that all the documents were furnished before the lower authorities and pleaded to delete the addition.
On the other hand, the ld. DR relied on the orders of the authorities below.
We have heard both the sides and perused the material on record. We find that the assessee had stated that one Smt. Urmila Rani who is the sister-in- law of Neota Ram has advanced Rs.3,50,000/- as advance for the property. She was also the owner of 12 acres of land which was being cultivated by Neota Ram and going by the AO’s estimation of income from 12 acres comes to Rs.1,68,000/-. When Urmila Rani has confirmed and filed affidavit and copy of the bank account details, we do not find any exercise being done by the AO to discredit Urmila Rani. Without having any material to state that Urmila Rani cannot have Rs.3,50,000/- with her is simply based on assumptions and presumptions. In any way, Smt. Urmila Rani has confirmed that the amount has been repaid back to her, so, therefore, in the facts and circumstances of the case, we direct the AO to delete the addition of Rs.3,50,000/- on this account.
11.1 As regards petty loans of Rs.75,000/- given by Smt. Urmila Devi, we find from the order of the ld. CIT (A) that even though Smt. Urmila Devi has accepted about advancing the sum of Rs.3,50,000/- to the assessee but she has refused to have given any loans i.e. Rs.75,000/- to the assessee, which is evident from her statement reproduced on page 25 of the CIT (A)’s order. Before us also, the assessee could not controvert this finding. However, we take note that Rs 75000/- was the aggregate amount of petty loan which has been received and repaid according to assessee, and the petty loan at a given point of time never exceeded Rs 15000/- is taken into account, so we are of the opinion that an amount of Rs 15000/- is to be disallowed. The assessee partly succeeds.
Accordingly, Grounds No.1 & 3 are allowed whereas Grounds No.2 & 4 are partly allowed.
Ground No.5 is against the sustenance of addition of Rs.20,340/- on account of disallowance of interest on advance paid to sister concerns. At the time of hearing, the ld. Counsel for the assessee did not press this ground, hence, the same is dismissed as not pressed.
Ground No.6 is against the sustenance of addition of Rs.1,05,190/- on account of disallowance of claim of depreciation on car with total disregard to the facts and circumstances of the case.
The AO observed that the assessee had claimed depreciation on car of Rs.1,05,190/-. According to the AO, per the figures emerging from the P & L Account the assessee had not debited vehicle running, repair and maintenance expenses, therefore, he was of the opinion that it was quite evident that the assets, namely, cars were not put to business use. Accordingly, the AO observed that the depreciation was not allowable in the case of such asset. The AO confronted the assessee with this issue and the assessee submitted that during the year under consideration, the assessee had crushed only 1243.78 qtls of paddy and as a result, the profits were low. The assessee further submitted that since the profit was low, it was decided by the management that the vehicle running and maintenance expenses would be met out of drawings made by the partners and accordingly the same would be debited to their capital accounts so that the profits would not be further lowered. However, the AO was not been convinced with the above explanation of the assessee because the claim of the assessee that the profit was low, had been found to be incorrect. Further, the AO observed that there was no sufficient withdrawal in the hand of the partner to meet out expense on the vehicle running and maintenance expenses. In this regard, the AO notes that Shri Shyam Sunder, partner had made total drawing of Rs.1,05,190/- and out of the same, a sum of Rs.50,000/- related to cash withdrawal and the remaining amount had been invested in LIC and income tax payments. In this manner, the AO observed that out of Rs.50,000/-, no amount could have been spared for vehicle running and maintenance expenses.
Similarly, out of the drawing of Rs.1,41,206/- made by Shri Jagdish Lal Anand, a sum of Rs.55,200/-, related to cash withdrawals and the remaining amount had been invested in LIC and income tax payment and accordingly, out of Rs.55,200/-, no amount could have been spared for vehicle running and maintenance expenses. In view of the above, the AO held that the cars were used by the partners for personal use and they were never put to use in the business because no expenses towards fuel, insurance, repair and maintenance had been debited in the account of the firm, therefore, he disallowed the claim of depreciation on car of Rs.1,05,190/-. Ld. CIT (A) confirmed the addition made by the AO.
Ld. AR reiterated the submissions made before the ld. CIT (A) and submitted that that the lower authorities rejected the version of the assessee as well as the statutory auditor of the firm with the contention that the cash withdrawals made by both the partners at Rs.1,05,200/- were not sufficient to meet the car expenses and household expenses of the partners. He submitted that however, the AO had not been able to controvert the explanation of the assessee and the statutory auditor who had finalized the Balance sheet and conducted the audit of the firm. He submitted that there was no logical explanation offered by the AO to reject the contention of the assessee and the explanation given by the auditor and further submitted that the AO had not been able to conclusively prove that the vehicle had not been used for the purpose of business as alleged by him and the addition is based on surmises and conjectures. Accordingly, he pleaded that the addition be deleted.
On the other hand, the ld. DR relied on the orders of the authorities below.
We have heard both the sides and perused the material on record. The claim of the assessee for the depreciation on the car to the tune of Rs.1,05,190/- was not allowed on the ground that the assessee had not debited vehicle running, repair and maintenance expenses in the profit and loss account. The assessee had pointed out that since the profit during the year under consideration has been low, they had taken a decision to bear the car maintenance expenses out of the withdrawals made by the partners in their capital account. The fact that the assessee is running a business of production of hulling of paddy to rice has not been found to be untrue and when the assessee is doing business and when it has claimed that the car is being put to use for business purposes, the depreciation should have been granted. The explanation of the assessee is plausible explanation and, therefore, we find that the assessee’s claim must be allowed. Therefore, the assessee succeeds on this ground.
In the result, the appeal of the assessee ( ) is partly allowed.
Now, we deal with filed by the assessee where penalty u/s 271(1)(c) of the Act was confirmed by the ld. CIT (A)-II, Dehradun vide order dated 26.10.2010.
The assessee is in appeal against the confirmation made by the CIT (A) of the penalty levied by the AO. We note that penalty has been levied by the AO on an addition of Rs.8,50,000/- and levied penalty of Rs.3,12,000/-, which was confirmed by the CIT (A). Since in the quantum appeal aforesaid we have confirmed the addition of Rs.30,000/-, the penalty to that extent is sustained. We order accordingly. The AO shall recalculate the penalty for Rs.30,000/- and give relief to the assessee accordingly.
In the result, the appeal (ITA No.1412/Del/2011) is partly allowed on the above terms.
To sum up : both the appeals are partly allowed.
Order pronounced in the Open Court on this 5th day of February, 2016.