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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri N.V. Vasudevan, & Shri M. Balaganesh
ORDER SHRI M.BALAGANESH, AM
This appeal of the assessee arises out of the order of the learned CIT(A)-XX, Kolkata in appeal no. 280/CIT(A)-XX/Wd-34(3)/11-12/Kol dated 17-12-2012 against the order of assessment framed for the assessment year 2009-10 u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in this appeal is as to whether a sum of Rs. 36,50,036/- received by the assessee could be added as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is dealing in trading of cotton. The Learned AO observed that there were cash deposits into the bank account of the assessee to the tune of Rs. 42,30,036/- on various dates. When confronted by the Learned AO, the assessee replied that Rs. 5,80,000/- was deposited out of cash in hand which was accepted by the Learned AO. For balance sum of Rs. 36,50,036/- , the assessee replied that one of the businesses of assessee firm is money lending and during the course of money lending business, it had advanced monies to the three parties and the said balances were outstanding for more than 10 years. During the assessment year under appeal, after lot of continued efforts from the assessee, the following three parties directly deposited cash into the bank account of the assessee towards repayment of their respective loan dues :- ( Figure in Rs.) M/s Raj Enterprises 5,89,959 M/s Brand Alloys Ltd 22,53,810 Mr.Vinay Baid 8,06,267 ------------------ 36,50,036/- Out of the three parties, the assessee was able to produce confirmation letter from Mr.Vinay Baid together with his PAN details. With regard to the other two parties, the assessee provided the last known address available with the assessee to the Learned AO for his verification. The Learned AO could not trace those two parties. The assessee also produced the ledger accounts of all those parties commencing from Asst Year 2003-04 onwards. The assessee stated that these loan balances were outstanding from Asst Year 1997-98 onwards but records were available with the assessee only from Asst year 2003-04 onwards. The assessee argued that the source of cash deposits in the bank account to the tune of Rs. 36,50,036/- is duly explained by way of loan balances received back from the aforesaid three parties in cash. The assessee also requested the Learned AO to issue summons u/s 131 of the Act to those two parties for cross verification and for the verification of genuineness of the claim of assessee. This explanation did not hold water in the mind of the Learned AO and he held that the identity of the parties, creditworthiness of the parties and genuineness of transactions not proved by the assessee and accordingly brought the same to tax as unexplained cash credit u/s 68 of the Act.
On first appeal, the assessee reiterated the submissions made before the Learned AO. It was argued that the assessee had placed the last known address of the loan debtor as is available in its records to the Learned AO and therefore the discharge of onus has been duly done by it. It was argued that had the Learned AO issued summons u/s 131 of the Act to those parties, they could have furnished necessary evidences in this regard. It was alternatively argued by the assessee that admittedly, one of the business of assessee was money lending and the lending to these three parties were made in the ordinary course of its money lending business and they were remaining outstanding for more than 10 years. Either way, the assessee had duly credited the monies to the account of the loan debtors in its books of accounts and had reduced the loan balances in its balance sheet which effectively amounts to write off in the books of accounts. In case if the amounts found credited in the bank account is added as unexplained cash credit u/s 68 of the Act, then correspondingly the assessee should be given the benefit of deduction of bad debt u/s 36(1)(vii) of the Act or as regular business loss as admittedly money lending is also one of the businesses of the assessee. It was argued that if the monies received from these three parties are not believed to be genuine, then correspondingly the assessee had already reduced the loan balances (part of business activity) on the asset side of the balance sheet which effectively amounts to write off the bad debt and hence deduction for the same should be given as genuine business loss. Thereafter ,this business loss would go to set off the other sources income and in either way, it would only be revenue neutral. The Learned CIT(A) however upheld the view of the Learned AO. Aggrieved, the assessee is in appeal before us on the following grounds:- 1) That the Learned C.I.T. appeal erred in confirming the addition of Rs.36,50,036/- being the sums received back from M/s. Brand Alloys amounting to Rs.22,53,810/-, M/s. Raj Enterprises Rs.5,89,989/= and Vinay Kumar Baid Rs.80,62,627/- which is due from them to the appellant since last more than Ten years and reflected as Sundry Debtors ( Loans & Advances) in the Balance Sheet. The aforesaid additions is unwarranted, bad in law and not sustainable.
2) That the Income-Tax Officer erred in invoking provisions of Sec.68 of I.T. Act and the Learned CIT(Appeals) erred in agreeing the same, which is not applicable in the Appellants case and hence the addition of Rs.36,50,036/- is bad in law.
3) That confirmation letter along with PAN No. and source of advance etc had been furnished during the Asst. year 1997-98, the aforesaid additions of Rs.36,50,036/- is unwarranted, bad in law and not sustainable. In facts these 3 formalities are required for loan or credit taken and not for the loan or advance given by the Appellant out of source reflected in Accounts.
4) That all the case Laws cited by the Learned Income-Tax Officer are connected or related to creditors or loan taken but in this case the same relates to sundry debtors i.e. advance given by us to the parties in earlier years which has been received back. The creditworthiness of the Appellant who has advanced is proved, there is no credit entry in Appellant's Books but squared up debit entry and taxes have already been paid on debit entries.
5) That without prejudice to above the sundry debtors from whom money could not be realized after lapse of a decade, the same is to be treated as bad debts and the Business loss of bad debts amounting to Rs.36,50,036/= may be set off against business profit for cash deposits for the equivalent amount and no addition in this Account is justifiable.”
The Learned AR reiterated his arguments made before the Learned CIT(A). He prayed that alternatively the monies not recovered from these three parties should be allowed as bad debt or regular business loss as the assessee had duly removed the loan balances from the books of accounts of the assessee which amounts to effective write off of the same. He further argued that the Learned AO had not rejected the books of accounts of the assessee by pointing out certain deficiencies thereon. He placed reliance on the co-ordinate bench decision of this tribunal in the case of Sanjeev Kejriwal, Kolkata vs ITO in dated 9.11.2012 in support of his contentions. In response to this, the Learned DR vehemently supported the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of (i) copy of partnership deeds dated 1.4.1994, 1.4.2007 and 1.4.2008 vide pages 1 to 41 of paper book ; (ii) copy of IT return acknowledgement together with audited accounts for Asst Year 2009-10 vide pages 42 to 56 ; (iii) copy of assessment order u/s 143(3) of the Act dated 7.12.2010 for Asst Year 2008-09 vide pages 57 to 72 ; (iv) Copy of intimation u/s 143(1) of the Act dated 27.7.2001 for Asst Year 1999-2000 vide page 73 ; (v) copy of tax audit report together with audited accounts for Asst Year 1999-2000 vide pages 74 to 105 ; (vi) copy of IT return acknowledgement and assessment order us 143(3) of the Act for the Asst Year 1998-99 vide pages 106 to 113 and (vii) copy of audited balance sheet as on 31.3.1998 together with tax audit report vide pages 114 to 140 .
6.1. We find that the addition has been made the Learned AO on the ground that the assessee could not obtain the confirmation from M/s Raj Enterprises and M/s Brand Alloys Ltd. It is not in dispute that the assessee had indeed furnished confirmation from Mr.Vinay Kumar Baid together with his PAN details which fact is also mentioned in the assessment order. The assessee had claimed that the source of cash deposits are nothing but realization of loan dues from the three parties in cash which were deposited into the bank account of the assessee. It is not in dispute that the assessee had indeed requested the Learned AO to issue summons to M/s Raj Enterprises and M/s Brand Alloys Ltd to make verification of the subject mentioned receipts. But the said summons could not be served on the parties at the address given by the assessee to Learned AO. The assessee had only proved the identity of the loan creditors (as they are existing from 31.3.1998 in its books which is also accepted by revenue) , but however, the assessee was not able to prove the creditworthiness of those parties. The genuineness of transaction has not been proved by the assessee. In these circumstances, though there is no direct evidence to prove that the assessee had only routed its undisclosed monies in the form of realization from loan parties, by virtue of operation of deeming provisions of section 68 of the Act, the addition made by the Learned AO needs to be sustained. With regard to the decision relied upon by the Learned AR on the co-ordinate bench of this tribunal in the case of Sanjeev Kejriwal vs ITO in dated 9.11.2012, we find that the facts stated thereon are squarely distinguishable with regard to realization of monies from debtors. In that case, there was a clear finding given by the Learned CIT(A) that the monies received represent realization from debtors. Whereas, in the instant case, the entire dispute revolves on the fact of realization of monies from loan debtors. Hence reliance placed on the aforesaid decision does not advance the case of the assessee on this aspect. Hence the same would become taxable as income from other sources.
6.2. It is not in dispute that the assessee had shown these loan balances due from these three parties as loans and advances receivable in its balance sheet for more than 10 years. It is also not in dispute that one of the main businesses of the assessee firm is money lending activity. This is quite evident from the various partnership deeds of the assessee vide clause 3 which are reproduced herein below for the sake of convenience :- 3. That the business of the firm shall be mainly that of export & import of agro products like raw cotton, pulses, food grain, spices etc., ginning and pressing of cotton, commission agent, manufacturer’s representative, general merchant, financier including money lending business, real estate and shall be entitled to carry on any other trade or business or manufacturing whatsoever as mutually agreed upon by the partners.
The same clause is present in the original partnership deed dated 1.4.1994 vide clause 3 and also in reconstituted partnership deeds dated 1.4.2007 and 1.4.2008.
This goes to prove that the assessee is indeed engaged in money lending business also. We also find that the assessee had duly shown the amounts receivable from the aforesaid three parties (i.e Raj Enterprsies, Brand Alloys Ltd and Vinay Kumar Baid) as loans and advances in the balance sheet as on 31.3.2008 (immediately preceding asst year) with the balances of Rs. 36,50,036/- in total of these three parties. This goes to prove that the assessee had continued its money lending business. During the asst year under appeal, the balances from these three parties are shown as nil in view of recoveries made by the assessee from them, according to assessee , which fact is also evident from the balance sheet as on 31.3.2009 filed in the paper book. However, the realization of monies from these loan parties have been disbelieved by the Learned AO and we have already given our finding in that regard hereinabove in favour of the revenue. But one more fact cannot be swept under the carpet that the assessee had brought the loan balances from these three parties to Nil as on 31.3.2009 in its books of accounts. It is not in dispute that the assessee was indeed carrying on money lending business in the past and had derived interest income thereon. This is quite evident from the copy of audited balance sheets filed by the assessee for the years ended 31.3.1998 and 31.3.1999, wherein the interest income is admitted by the assessee as income from business. It is also not in dispute that the revenue had also accepted the same as income from business in the past. It is not in dispute that the assessee had continued to carry on its money lending business. It is also not in dispute that the lending to these parties were made in the ordinary course of money lending business of the assessee. Since the assessee has claimed that the monies have been realized from these parties, it is estopped from proceeding against these parties from making any recoveries. It is also not in dispute that the assessee had brought the balances of these parties to Nil as on 31.3.2009 in its books of accounts. Hence the assessee is entitled to claim the balances of these three parties as a trading loss u/s 28 of the Act. In view of these facts and circumstances, we find lot of force in the alternative argument of the assessee that the non-recovery of the loan dues , according to Learned AO, should be allowed as a deduction as regular business loss from money lending activity , which in turn would only go to increase the business loss of the assessee for the year under appeal and the same would in turn be available for set off against the alleged income from other sources u/s 68 of the Act. Hence in any case, no addition could be made in the hands of the assessee in the sum of Rs. 36,50,036/-.
Hence we find lot of force in the alternative argument of the Learned AR. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 8-4 - 2016