ACIT, CIRCLE-3(3), SURAT vs. SHRI JETHABHAI DANABHAI VADHER, SURAT

Grounds of appeal raised by the Revenue are as follows:

Whether on facts and in law the Ld. CIT(A) was justified in deleting the addition of Rs.25,71,000/- made by the AO on account of unexplained and unrecorded investment in immovable property, by observing that the assessee had purchased the land in F.Y. 2011-12 and the AO cannot make the addition for the year under consideration, without considering the fact the assessee had failed to disclose the said property in the balance sheet as on 31.03.2014? 5. Whether on facts and in law the Ld. CIT(A) was justified in deleting the addition of Rs.7,65,033/- out of the addition made by the AO of Rs.20,40,000/- on account of unexplained business receipts from sales of various plots, by allowing the benefit of cost of acquisition of the property sold at Rs.7,65,033/-, inspite of the facts that during the assessment proceedings, it was established that the assessee was engaged in the business of sale of plots and this receipt was over and above the income & expenses recorded in his regular books of accounts and the assessee is not eligible for the deduction of cost of acquisition? 6. Whether on facts and in law the Ld. CIT(A) was justified in deleting the addition of Rs.8,50,818/- made by the AO on account of unexplained interest expenses in respect of loan taken from HDB Financial Services, by accepting submission of the assessee that the net interest should be considered for the disallowance, without considering the fact that the assessee had shown huge amounts of other loans in his accounts and could not establish that against which loan the interest expenses of Rs.8,50,818/- was incurred with any supporting documentary evidences?

Succinct facts qua the issue are that during the course of assessment proceedings, on verification of the details submitted by the assessee regarding the investment in LIC policies, it has been observed by the assessing officer that assessee has made total investment of Rs.2,31,465/- in LIC during the year under consideration, the details of the same are as follows: Sr. Police No. Premium paid Premium/;half Premium amount Total amount of No. by yearly/yearly premium paid (Rs) 1 862521201 Assessee YLY 1 x 1 16,651/- 16,651/- Page | 3

In response to the aforesaid show cause notice, the assessee, vide his letter dated 16.12.2016 has submitted his reply, which is reproduced below: “Regarding your proposed addition of Rs.1,26,630/- on account of unexplained investments u/s 69 of the Act for the investment in LIC policies, it is submitted that out of the total premium of Rs.2,31,465/- the assessee has shown Rs.1,04,835/- as premium paid in the computation of income. The remaining amount of Rs.97,771/ is paid by the spouse of the assessee Smt. Dakshaben Jethabhai Vadher and so the assessee has not claimed any deductions on account of the same. The said receipts of Rs.97,771/- along with the copy of bank passbook in which said payment is highlighted are enclosed herewith for your kind perusal. The balance amount of Rs.28,859/- is paid on 28.03.2014 and the cheque for the same was cleared in FY 2014-15. So the assessee has claimed the deduction for the said payment in the next financial year.”

Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. Learned Sr-DR for the Revenue argued that LIC payment was made by the spouse of the assessee and not by the assessee himself. The spouse is a separate tax entity therefore LIC payment may be disallowed. On the other hand, Learned Counsel for the assessee, argued that LIC premium was paid by cheque by himself and partly by his wife, hence it is not an unaccounted investment therefore ld CIT(A) has rightly deleted the addition.

We have heard the rival parties and have gone through the material placed on record. We note that Ground No.1 raised by the Revenue pertains to addition of Rs.1,26,630/- u/s 69 of the Act. The ld CIT(A) observed that Assessing Officer has not disputed the premium of Rs.1,04,835/- claimed by the assessee in the computation. Out of the policies tabulated in assessment order totalling Rs.2,31,465/-, the payment on two occasions are made by spouse of the assessee being Rs.92,293/- dated 17.02.2014 and Rs.9,587/- dated 31.12.2013, which is also reflected in the bank statement of Daxaben Vadher (spouse of assessee) filed in the paper book at page No.52. The ld CIT(A) noted that if charges are removed from 92,293/-, it comes to Rs.88,184/- and hence the total premium paid by wife comes to Rs.97,771/- (88,184 + 9,587/-). The copy of LIC receipt also proves that the payment is Page | 5 CO 17/SRT/2020 A.Y. 2014-15 Sh. Jethabhai D Vadher made by the spouse of assessee. The balance amount of Rs.28,859/- is paid on 28.03.2014 and ld CIT(A) noted that the cheque for the same was cleared in financial year (FY) 2014-15 i.e. on 02.04.2014, as evident from the bank account of assessee and so the assessee has claimed the deduction for the said payment in the next financial year. Therefore, ld CIT(A) noted that the payment made towards insurance policies was not unaccounted/unexplained investment, and hence ld CIT(A) deleted the addition. We have gone through above findings of ld CIT(A) and noted that the conclusions arrived at by the CIT(A) are correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss ground No.1 raised by the Revenue.

Ground No.2 raised by the Revenue relates to deleting the addition of Rs.48,94,000/- out of the addition made by the Assessing Officer of Rs.61,94,000/- .

Succinct facts qua the issue are that during the course of assessment proceedings, on verification of the copies of bank statements of Savings Account No.248011-2003448, with the Sutex Co-Op. Bank Ltd., Parvat Patia Branch and Account No.2236893183 with the Central Bank of India, it was noticed by Assessing Officer that during the year under consideration there are huge amounts of cash deposits to the tune of Rs.48,94,000/- and Rs.13,00,000/- respectively were made by the assessee on various dates in the said bank accounts. It has further been noticed by Assessing Officer from the copy of Form No.3CD, forming part of Audit Report furnished by the assessee, during the course of assessment proceedings that the assessee was following "Mercantile" system of accounting and was having business of sale of finished fabrics during the year under consideration. During the course of assessment proceedings, the assessee has grossly failed to produce the cash book, bank, book and purchase and sales register for verification of Page | 6

In response to the aforesaid show-cause notice, the assesses, vide his letter dated 16.12.2016 and 15.12.2016 has submitted written submission before the AO, which are reproduced below: "As per reply dated 16.12.2016:- Regarding cash deposits of Rs.48,94,000/- in the account held with Sutex Co-op. Bank Ltd., we are giving explanation of the same vide our separate letter dated 15.12.2016. As per reply dated 15.12.2016:- “Regarding your proposal to make addition of Rs.48,94,000/- on account of unexplained cash deposits, it is submitted that the bank account under consideration held with Sutex Co-op. Bank Ltd. is reflected in the audited balance sheet. We have already submitted Audit report before your honour. For the purpose of source of cash deposits, we are enclosing cash book." As per reply dated 16.12.2016:- Regarding cash deposits of Rs.13,00,000/- in the account No.2236893183 with Central Bank of India, it is submitted that the assessee has made the deposits against the advance received from sale of plot at Bagumara, Dist Palsana although the assessee disclosed profit in the A. Y. 20016-17, but advance received earlier."

However, Assessing Officer rejected the plea of the assessee and held that explanation given by the assessee was not satisfactory therefore made an addition u/s 68 of the Act amounting to Rs.61,94,000/- [Rs.48,94,000 + Rs.13,00,000].

On appeal, ld CIT(A) deleted the addition of Rs.48,94,000/- and confirmed the addition of Rs.13,00,000/-. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us and assessee is in cross objection before us.

On the other hand, Ld Counsel for the assessee, pleaded that in respect of cash deposit of Rs.13,00,000/- made by the assessee, with Central Bank of India, is out of agricultural income, cash sales, etc., and the relevant entries were reflected in the cash book. The assessee had produced cash book for verification before the Assessing Officer and the Assessing Officer did not find any mistake or irregularity. Had the assessee`s cash book was wrong, the Assessing Officer would have rejected books of accounts of the assessee. Therefore, ld Counsel contended that since assessee`s books of accounts were not rejected therefore addition sustained by ld CIT(A) at Rs.13,00,000/- may be deleted.

We note that the ld CIT(A) after going through the Income Tax Return of earlier years observed that the cash book shows the opening balance of Rs.14,14,421/- which is tallied with “Schedule-Part A-BS” of ITR filed for preceding year i.e., AY 2013-14. Therefore, ld CIT(A) observed that the cash deposits in banks were from the cash book disclosed in the books of accounts. The ld CIT(A) noted that assessee has also provided the source of cash in cash book being agriculture income, cash sales, sale of car etc. During the year, the assessee has shown receipts in cash on account of agricultural activity of Rs.28,12,688/- and sale of car of Rs.6,00,000/- in cash and cash sales of Rs.10,25,250/- which was accepted by Assessing Officer inasmuch as Assessing Officer has not pointed out any defect in the cash book and has not rejected the books of account. Therefore, after considering the arguments and the submission of the assessee that the cash deposits of Rs.48,94,000/- in Sutex Co-operative are made from cash in hand from cash book and hence the addition made of Rs.48,94,000/- was deleted by ld CIT(A). We note that there is no infirmity in the conclusion reached by ld CIT(A), hence we approve and confirm the findings of ld CIT(A) and dismiss the ground No.2 raised by the Revenue.

In regard to addition of Rs.13,00,000/-, we note that during the appellate proceedings, the assessee has contended to give telescoping against the income declared in IDS. We also note that Assessing Officer has not pointed out any defect in the cash book and has not rejected the books of accounts, of the assessee, therefore, we delete the addition of Rs.13,00,000/-. Page | 9

Ground No.3 raised by the Revenue relates to deleting the addition of Rs.50,00,000/- made by the Assessing Officer on account of unsecured loan.

Succinct facts qua the issue are that during the course of assessment proceedings, on verification of the copy of balance sheet as on dated 31.03.2014, it was noticed by the Assessing Officer that assessee had shown unsecured loan of Rs.78,25,918/-. For verification of the genuineness of the transactions, creditworthiness of the so-called lenders and for verification of identity of the lenders, a show-cause notice dated 10.08.2016 was issued by the Assessing Officer which was duly served upon the assessee. In response to the show-cause notice, the assessee has submitted its reply, which is reproduced below: “Assessee received Rs.50,00,000/- from Ahmed Bopat. The said person has confirmed the fact of tendering amount of Rs.50,00,000/- to the assessee before your honour. Assessee sold 4602.78 sq. mtrs land to the said person for Rs.20,40,000/-. The assessee didn't offer the short term capital gain on sale of land which works out to Rs.12,74,967/-. We have enclosed herewith working of short term capital gain for your kind perusal. This amount may please be added to the total income of the assessee. The remaining amount of Rs.29,60,000/- was received as advance. A copy of purchase deed and sale deeds of the land under consideration are also enclosed.”

However, the assessing officer has rejected the contention of the assessee and held that so-called unsecured loan to the extent of Rs.50,00,000/- from Shri Ahemad Bobat is bogus and therefore Assessing Officer made addition to the tune of Rs.50,00,000/-.

On appeal, ld CIT(A) deleted the addition therefore revenue is in appeal before us. Learned DR for the Revenue has argued a lot, however finally he has primarily reiterated the stand taken by the Assessing Officer, CO 17/SRT/2020 A.Y. 2014-15 Sh. Jethabhai D Vadher which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee defended the order passed by the ld CIT(A).

We have heard both the parties.We note that ground No.3 raised by the revenue pertains to addition of Rs.50,00,000/- on account of unexplained credits. The undisputed facts are that the assessee has received Rs.50,00,000/- from Shri Ahmed Bobat during the year under consideration which has been shown by the assessee as unsecured loans in the balance sheet. The only basis of addition of the Assessing Officer is that the nature of payment of Rs.50,00,000/- received from Ahmed Bobat is “advance against purchase of plot from the assessee and not unsecured loan. The Assessing Officer has issued summons u/s 131 to Shri Ahmed Bobat and in response to the same, Ahmed Bobat has filed a letter dated 02.09.2016 in which he has confirmed that the has given money to the assessee for the purchase of plot. Based on these facts, the ld CIT(A) held that the Assessing Officer has made inquiry with the party u/s 131 of the Act and during the inquiry, the party has confirmed the fact of advance of money to the assessee and thus the impugned amount of Rs.50,00,000/- cannot partake the character of undisclosed income of the assessee. Even if the version of Assessing Officer is accepted, the change in nomenclature of unsecured loan to advance for purchase of plot would not invoke the provisions of Section 68 because it does not prove that the amount represents any unaccounted income of the assessee. The assessee also relied on various judicial precedents during the appellate proceedings. Based on this factual position, the ld CIT(A) deleted the addition. We do not find any infirmity in the conclusion reached by ld CIT(A), hence we dismiss ground No.3 raised by the Revenue.

Succinct facts qua the issue are that during the assessment proceedings, the Assessing Officer observed that unsecured loans to the tune of Rs.7,00,000/- [out of the total of Rs.28,25,918/-] claimed to have been taken from Archana Maske, Daxaben Vadher and Harish Maske. The Assessing Officer issued the notice to the assessee to explain the transaction. In response to the notice of the Assessing Officer, the assessee has furnished the details before the Assessing Officer. However, the Assessing Officer has rejected the contention of the assessee and held that lenders have very meager income; hence creditworthiness cannot be established, therefore Assessing Officer made addition of Rs.7,00,000/-.

On appeal, ld CIT(A) confirmed the action of the Assessing Officer, therefore assessee is in cross objection before us. The ld Counsel for the assessee submitted that transaction was through cheque by way of banking channel hence genuineness cannot be doubted. On the other hand, ld DR relied on the findings of the Assessing Officer.

We have heard both the parties. We note that Ground No.2 raised by the assessee in his C.O, pertains to addition of Rs.7,00,000/-. We observe that assessee had received loan from Archana Harish Makse, Dakshaben Jettabhai Vadher and Harish G Maske of Rs.2,00,000/-, 3,00,000/- and 2,00,000/- respectively. As far as the assessee is concerned, he has submitted the following documents and evidences: (i) confirmation of accounts of transaction (ii) the copy of the bank account of the creditor shown the CO 17/SRT/2020 A.Y. 2014-15 Sh. Jethabhai D Vadher transaction to the assessee. (iii) copy of income tax return filed (iv) copy of balance sheet in the case of the impugned unsecured loan parties. We note that by submitting these details and documents the assessee has discharged his onus to explain the credits. We note that Assessing Officer has not made any adverse finding in any of these documents and details submitted by the assessee, even though all these details were furnished by the assessee before him. The Assessing Officer ought to have examined all these details and refuted / rejected them, with a cogent adverse findings and discernable line of reasoning, in order to arrive at a conclusion and to make such addition, however, the Assessing Officer has failed to do so. Hence, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made is deleted. Hence this ground No.2 of the assessee`s CO is allowed.

Ground No. 4 raised by the revenue relates to deleting the addition of Rs.25,71,000/- made by the Assessing Officer on account of unexplained investment in immovable property.

Brief facts qua the issue are that during the course of assessment proceedings, on verification of the copy of balance sheet for the year under consideration, it has been noticed by the Assessing Officer that the assessee has not disclosed the property located at Block No.459A, Revenue S.No.376, village Haldharu, Tal. Kamrej, Dist. Surat, admeasuring 15285 sq. Mtrs. in the balance sheet as on 31.03.2014 i.e. his regular books of accounts for the year under consideration. Therefore, Assessing Officer was of the view that assessee has suppressed the investments in the said land therefore made addition to the tune of Rs.25,71,000/-.

On appeal, ld CIT(A) deleted the addition, therefore Revenue is in appeal before us. The ld Counsel for the assessee submitted that land was CO 17/SRT/2020 A.Y. 2014-15 Sh. Jethabhai D Vadher purchased in FY 2011-12, therefore, this transaction is not taxable in the assessment year 2014-15, hence ld Counsel relied on the findings of ld CIT(A). On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We have heard both the parties. We note that Ground No. 4 raised by the Revenue pertains to addition of Rs.25,71,000/- on account of unexplained unaccounted and unrecorded investment. During the appellate proceedings, the ld CIT(A) observed that assessee had purchased 15617 sq. meter land by executing registered sale deed on 16.05.2011 for Rs.25,71,000/-. The copy of purchase deed is field in the paper book by the assessee and the same is verified by us. Based on these facts, ld CIT(A) held that the land was purchased in FY 2011-12, and hence the addition made by Assessing Officer in the year under consideration is totally uncalled for. We agree with the findings of ld CIT(A) and dismiss the ground no.4 raised by the Revenue.

Ground No. 5 raised by the Revenue relates to deleting the addition of Rs.7,65,033/- out of the addition made by the Assessing Officer of Rs.20,40,000/- on account of unexplained business receipts.

The ld DR for the Revenue submitted that this receipt is from sales of various plots, by allowing the benefit of cost of acquisition of the property sold at Rs.7,65,033/-, inspite of the facts that during the assessment proceedings, it was established that the assessee was engaged in the business of sale of plots and this receipt was over and above the income and expenses recorded in assessee`s regular books of accounts and therefore the assessee is not eligible for the deduction of cost of acquisition. On the other hand, ld Counsel defended the order passed by ld CIT(A).

Having considered the above facts, the ld CIT(A) observed that the Assessing Officer has made the addition on account of capital gain of Rs.20,40,000/- which is the sales consideration as per sale deeds without allowing the cost of acquisition which is naturally to be given as per the provision of Section 48. Further, on perusal of sample sale deeds of these plots, the ld CIT(A) noticed that the sale deed does not state the mode of payment being cash and hence the Assessing Officer has wrongly assumed the mode of payment as cash. However, it is also true that the assessee has failed to offer the resulting capital gains arising on sale of capital asset amounting to Rs.12,74,967/-. Therefore, ld CIT(A) confirmed the addition to the tune of Rs.12,74,967/- and the assessee got the relief of Rs.7,65,033/- (Rs.20,40,000 – Rs.12,74,967/-). This way, the ground of appeal raised by CO 17/SRT/2020 A.Y. 2014-15 Sh. Jethabhai D Vadher the assessee was partly allowed by ld CIT(A). We have gone through the above conclusion reached by ld CIT(A) and observed that there is no infirmity in the order passed by ld CIT(A), therefore we confirm and approve the findings of ld CIT(A) and dismiss the ground No.5 raised by the Revenue. 37. Ground No.6 raised by the Revenue relates to deleting the addition of Rs.8,50,818/- made by the Assessing Officer.

We have heard both the parties. We note that Ground No.6 raised by the Revenue relates addition of Rs.8,50,818/- on account of interest expenses. The assessee has incurred interest expense of Rs.8,50,818/- on loan taken from HDB Financial Services and the said loan was advanced to Himmatbhai Nathabhai Rakholitya, which was evidenced from copy of bank statement of Sutex Co-op Bank. On perusal of bank statement and loan ledger, it was observed by ld CIT(A) that the total amount of loan is Rs.97,58,647/- credited in the bank account on 04.07.2013 and immediately an amount of Rs.82,00,000/- is advanced to Himmatbhai Rakholiyaon,

Ground no.7 raised by the Revenue pertains to deleting the addition of Rs.36,00,000/- made by the AO on account of loans taken from the Central Bank of India.

Learned DR for the Revenue argued that loan from Bank has not been disclosed in the books of accounts therefore addition made by the Assessing Officer may be sustained. On the other hand, ld Counsel for the assessee defended the order passed by ld CIT(A).

We have heard both the parties. We note that ground No.7 pertains to addition of Rs.36,00,000/- on account of unexplained and unrecorded loans. The brief facts are that assessee had received agricultural income during the year under consideration. It was observed by the Assessing Officer that assessee had received loan of Rs.6,00,000/- from Central Bank of India, Page | 17

In the result, appeal of the Revenue is dismissed whereas assessee’s Cross Objection is allowed. Order pronounced in the open court on 26/06/2023 by placing the result on the notice board.