SH. DHARMENDER SINGH,NOIDA vs. ITO, NOIDA

The assessee runs a cable network in Noida. The assessee filed its return of income on 03.01.2006 declaring income of Rs.1,11,864/-. During the course of assessment the AO noted that there was a negative cash balance of Rs.1,41,740/- as on 31.03.2005. The AO asked the assessee to explain the negative cash balance as worked out. The AO has recorded that the assessee did not furnish any explanation for the expenditure made by him to the extent of Rs.1,41,740/- which was not recorded in the books of account, accordingly, the AO made an addition of Rs.1,41,740/- being unexplained.

Before the Tribunal the ld AR of the assessee has submitted that the assessee has gross receipt of Rs.8,10,000/- and a margin in this type of business is only about 15% as a major expenditure is incurred to main channel partner and salary of staff. He has further contended that the AO has not disallowed any expenditure as he found no expenditure to be excessive or which remain un-vouched. The AO failed to take note of the fact that the assessee is maintaining some imprest accounts in his books of account which are absolutely of the same nature as cash in hand and therefore there was no reason to deduce that there was shortage of cash in hand. The ld AR has submitted that the assessee is giving the cash to its employees for maintaining the cable network and carrying out the expenses during the maintenance work. Therefore, the assessee is having this imprest account and without considering the amount with the employees of the assessee, the said addition is not warranted. Thus the ld AR submitted that there was adequate cash in hand and imprest and therefore addition may be deleted. On the other hand the ld DR has submitted that the AO worked out the various details from the account of the assessee and found that there is negative balance as on 31.03.2005 for which the assessee has not furnished any explanation as to how there was negative cash balance. Even before the learned Commissioner of Income-tax (Appeals) the assessee has not furnished any record or material to explain the said amount of negative cash balance. Therefore the assessee has failed even explain the discrepancy found by the AO. She has relied upon the orders of the authorities below.

Having considered the rival submission as well as relevant materials on record, it is found that the AO has verified the cash flow of the assessee and after tallying the various figures of expenses and receipts worked out that there is negative cash balance of Rs.1,41,740/-. The assessee has not disputed the working of the AO in bringing out this negative cash balance, even the assessee has not Page No. 3 given a specific items of expenses which is actually incurred and could not be recorded in the books of account or cash was taken from the business and could not be recorded in the books of account. Further even before the learned Commissioner of Income-tax (Appeals) the assessee has made a general statement that the assessee is maintaining some imprest accounts and giving cash to its employees without giving any specific details of how much amount the assessee has given to the employees and why the same was not recorded in the books of account. Therefore in the absence of any convincing explanation as well as any specific fact brought on record no fault has found in the action of the AO in making the addition on this account. The entire submission of the assessee is general in nature without any evidence or material to substantiate its claim. Therefore, the assessee has no merit to substantiate against this addition of Rs.141740/- , and the same is confirmed.

Ground No.2 is regarding addition of loan taken from Mr. Subhash Chand. During the assessment proceeding the AO found that the assessee has unsecured loan from the three persons as under:- 1. M/s. Gagan Moulding (P) Ltd. Rs.54,000/- 2. M/s. Shivam & Co. Rs.2,40,000/- 3. Sh. Subash Chand Rs.3,00,000/- 7. The AO asked the assessee to prove the identity and creditworthiness of the lenders and establish the genuineness of the transaction. The assessee furnished a copy of confirmation showing date and mode of payment regarding loan taken from M/s Gagan Moulding (P) Ltd. and M/s. Shivam & Co. The AO got conducted an enquiry through the Income Tax Inspector. On the basis of the information from the enquiry conducted by the Inspector, the AO found that Sh.Subash Chand was employed as supervisor in Noida Authority on contract basis and earning a salary of Rs.3500/- per month. Thus the AO was of the view that a person who is earning a salary of Rs.3500/- per month cannot give an amount Rs.3 lac to the assessee. It was also claimed that Sh. Subash Chand’s father received a compensation of Rs.10 lac in the year 1995. Further, the AO noted that the lender could not produce any receipt regarding the compensation having been received by his father and also failed to give any explanation as to why the compensation received way back in Page No. 4 the year 1995 was still kept in cash till March 2005. Thus the AO treated Rs.3 lac as unexplained and the same added to the income of the assessee.

The assessee challenged the action of the AO before learned Commissioner of Income-tax (Appeals, but could not succeed. The learned Commissioner of Income-tax (Appeals) did not find any error in the finding of the AO and the same was confirmed.

Before the Tribunal the ld AR of the assessee has submitted that the loan creditor has been examined by the AO as his statement was recorded and therefore when he has given confirmation about the loan transaction then the same cannot be treated as explained credit. The loan creditor specifically unexplained that in the year 1995 his father received Rs. 10 lac as compensation and therefore he was having a source of loan given to the assessee. Once the loan creditor accepted the transaction and explaining the source then the assessee has discharged its onus for proving the identity and creditworthiness of the loan creditor. He has further submitted that the loan has been repaid by the assessee during the assessment year 2012-13 and therefore the loan cannot be treated as unexplained credit. On the other hand the ld DR submitted that the loan creditor is not a tax assessee as no PAN was given. Therefore the assessee has failed to prove the creditworthiness of the loan creditor. The ld DR submitted that the assessee has failed to prove the genuineness, identity and creditworthiness of the creditor and accordingly the AO is justified in making the addition.

Rival submission as well as relevant material is considered. The assessee has shown loan from 3 persons as details given inforeseen para. Out of 3 loan transactions the AO accepted 2 loan transactions as he was satisfying with the genuineness and creditworthiness those two parties, however only in respect of the loan of Rs.3 lac from Sh. Subash Chand AO conducted an enquiry through the Inspector. Statement of the loan creditor was recorded in which the loan creditor confirmed the transaction. Though he has explained that he is doing a service and earning a salary of Rs.3500 per month, however he has also explained that his father received a compensation of Rs.10 lac in the year 1995 and therefore he was having a source of this loan. This fact is explained by the loan creditor, and the compensation itself is a fact which can be verified even from the other record and information from the concerned authorities. The AO has rejected the confirmation