THE ITO, WARD-1(2)(4), AHMEDABAD vs. SHRI. SURESHCHANDRA SHANTILAL BRAHMBHATT, AHMEDABAD

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

2. It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”

2. The brief facts of the case are that the assessee has filed return of income for the impugned assessment year on 17.10.2016 declaring income of Rs. 10,21,530/-. The Return of income was processed by Revenue under section 143(1). The case of the assessee was selected by Revenue for framing scrutiny assessment , and statutory notice(s) were issued by the AO under section 143(2) and 142(1) of the 1961 Act to the assessee, from time to time, which was claimed by Revenue to have been duly served on the assessee. There is no dispute about the same. During the course of assessment proceedings, the AO observed that assessee has raised loans to the tune of Rs. 3,11,57,370/- during the year under consideration, and the asssessee has only submitted confirmation of unsecured loan providers, but has not submitted copies of bank statements for the period 01.04.2015 to 31.03.2016, address proof , copies of Return of Income for assessment year 2016-17 along with statement of income, P&L Account, Balance Sheet and capital account of unsecured loan provider. The AO further observed that the assessee has not submitted details of interest rates, interest payments and TDS deduction details. The AO observed that the unsecured loans in the balance sheet of the assessee are not genuine, and the AO issued show cause notice to the assessee show-causing as to why the unsecured loans to the tune of Rs. 3,11,57,030/- received by the assessee should not be added to the income of the assessee. The assessee filed submissions before the AO providing details of the unsecured loans as under:-

Sh. Sureshchandra Shantilal Bramhbhatt Sh. Sureshchandra Shantilal Bramhbhatt 2.2 The assessee submitted before the AO that he started business in the month of November, 2015, and the unsecured loans to the tune of Rs. 1,08,50,000/- were raised in the earlier years , while the balance amount of Rs. 2,01,00,000/- were raised during the year under consideration. It was submitted by the assessee that these loans were raised from friends and relatives and there is no question of making any additions to the income of the assessee.

2.2 The AO observed on verification of income tax return filed by the assessee with Revenue for assessment year 2015-16, that the assessee has shown unsecured loans from others as zero in the ITR for the assessment year 2015-16. Therefore, the AO observed that the opening balance of loan of Rs. 1,08,50,000/- is not genuine. The AO observed that the assessee’s reply and confirmations/ledger of unsecured loan provider are also not found to be genuine. The AO also observed that the assessee has provided only confirmation ledger of unsecured loan provider without copies of bank statement and copy of return of income of the unsecured loan providers , as also the assessee has not debited/paid interest on these loans to the unsecured loan provider. The creditworthiness of unsecured loan provider was not proved. Thus the AO added the opening balance of Rs. 1,08,50,000/- to the income of the assessee under section 68 of the Act 2.3 With regards to the loan raised by the assessee during the year, the assessee claimed that Rs. 1,00,00,000/- was raised from ‘Hysafe Medico Products Pvt. Ltd.’, and that the assessee has provided for interest on these loans from the date of start of business in November, 2015. Regarding balance unsecured loan received by the assessee, the assessee submitted before the AO that it will submit declaration that the interest free loans were given by friends and relatives. The assessee submitted before the AO that the confirmations were already submitted.

Sh. Sureshchandra Shantilal Bramhbhatt 2.4 The AO observed that the assessee has provided only confirmation ledger of unsecured loan provider without copies of bank statements and copies of return of income of the unsecured loan provider and also that the assessee has not debited or paid interest claiming that these unsecured loans are raised from the relative and friends, but no details are provided as to the relation of the assessee with these unsecured loan providers. The AO further observed that the genuineness of unsecured loans were not proved,and hence the AO added Rs. 1,01,00,000/- to the income of the assessee under section 68 of the Act. So far as unsecured loan of Rs. 1,00,00,000/- raised by assessee from ‘Hysafe Medico Products Pvt. Ltd.’, the same were accepted by the AO and no additions were made by the AO to the income of the assessee. The AO accordingly passed the assessment order dated 21.12.2018 section 143(3) of the Act .

2.5 Thus, the AO made the additions to the income of the assessee to the tune of Rs. 2,09,50,000/- u/s 68 of the 1961 Act towards unsecured loans raised during the year by treating the same as not genuine being bogus unsecured loans , and by treating the same as an unexplained cash credit.

3.2 The ld. CIT(A) deleted the additions as were made by the AO vide appellate order dated 28.08.2019, by holding as under:-

“I have carefully considered the assessment order, grounds of appeal raised and submission of the appellant. The ground no. 2 is relating to addition of Rs. 2,09,50,000/- u/s 68. The appellant submitted detailed comments on each and every credit entry in the books of accounts saying that the genuineness has been proved and the addition has been made because of misunderstanding of the facts by the AO. In addition to the explanation, the appellant relied on the ratio of following case laws: Commissioner of Income-tax-I Vs. Chanakya Developers (2014) 43 ITR 91 (Guj.). Income-tax Officer, Ward 2(3) Vs. Shanti Enterprise (Guj. Hc.) [2016] Namision Powertech (P.) Ltd Vs. Assistant Commissioner of Income-tax, Bharuch Circle, Bharuch (2017) (Ahmedabad - Trib.) Bench C The AR vehemently argued that there is no additional evidence to be filed under rule 46A as all the relevant material had been kept on the file of AO. The ratio of case laws (supra) relied by AR has been examined. The ratio in the case of Jute Corporation of India Ltd. 187 ITR 688 (SC) has been followed to examine the facts on record. The total information was collated and the same is reproduced as under:

Sh. Sureshchandra Shantilal Bramhbhatt Sh. Sureshchandra Shantilal Bramhbhatt Sh. Sureshchandra Shantilal Bramhbhatt The appellant as can be seen above has explained with confirmations that addition on account of advances and opening balance of Rs. 1,08,50,000/- cannot be made u/s 68. Further, the addition to deposit account during the year of Rs. 1,01,00,000/- has also been explained with confirmations. In other words, the total amount of Rs. 2,09,50,000/- has been explained with confirmations for the amount which is either deposit or addition to loan account during the year under consideration in addition to certain amounts which were accounted from the earlier year i.e, the same was opening balance against the various persons. The confirmations are on record having date wise details/ PAN/address of the creditor. The bank account copy and copy of return of income for concerned previous year has also been filed for the relevant creditors to show that the genuine transaction has been done by the appellant. The appellant has submitted name/address/PAN/copy of bank statement/acknowledgement of ITR/ Statement of Income and confirmation of ledger accounts. The Hon'ble jurisdictional High Court in the case of CIT V/s Ranchhod Jivabhai Nakhava reported at 208 Taxmann 35 has held- "Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amounts of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act. If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction. We, thus, find that in the case before us the Tribunal below rightly set-aside the deletion made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors. The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officers."

Sh. Sureshchandra Shantilal Bramhbhatt The onus has been discharged by the appellant. The confirmations have been filed giving PAN No. of the creditors. The creditworthiness of the creditor(s) cannot be decided by the AO of the appellant. In fact, the AO of appellant can get the matter investigated through the AO of the creditors. The AO of appellant cannot become AO of the creditors. It is not the case of AO that the impugned amount is appellant's own money generated out of books of account and the same is introduced in its books of accounts through bogus creditors. If that is so, what evidences AO has collected to place it on record. Once confirmations have been filed, further action, if any, is required to be taken in case of creditor and not in case of appellant. Explanation about 'source of source' or 'origins of origin' cannot be asked from the appellant while making inquiry under section 68 as per ratio laid down in the case of DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj): "Mere identification of the source of the creditors even without evidence as to the nature of the income could justify acceptance, where the assesseee has given the GIR number / PAN of the creditor and also shows that the amounts were received by account payee cheques. It was further held that it is not necessary, that there should be an explanation as to the source of the money on the part of the creditors in every case."

Reliance is also placed on another case i.e. CIT vs. Dharamdev Finance Pvt. Ltd. 43 Taxmann 395 (Guj.) wherein it is held, "No addition on account of cash credits could be made, where assessee had given PAN of creditors, their confirmations and their bank statements which established their creditability" There are other case laws supporting the case of the appellant as under: i) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.) ii) CIT Vs. Pragati Co-op. Bank Ltd. 278 ITR 170 (Guj.) iii) CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) iv) CIT vs. Sanjay K. Thakkar Tax Appeal Nos. 524 of 2004, 525 and 526 of 2004 and 579 to 583 of 2003 dated 12-9-2005 (Guj. HC) v) ITO Vs Kailpar Credit & Mercantile Pvt. Ltd. in (ITAT. Ahd.) I am not inclined to accept the findings of the A.O. there is no inquiry report by the AO brought on record. The plethora of evidences filed by the appellant such as confirmation/ITR/copy of bank accounts and are on record, cannot be ignored.” In view of facts of the case and the ratio laid down by case laws (Supra), the addition made by the AO of 2,09,50,000/- u/s. 68 of the I. T. Act, 1961 is hereby deleted. The ground No.2 of appeal is accordingly allowed. 4.1 The ground no. 1 and 3 are general in nature hence dismissed. The ground no. 4 is urging the undersigned to stay the demand which is beyond mandate given as per I.T. Act, hence cannot be adjudicated. Therefore, ground no. 4 is dismissed.”

Sh. Sureshchandra Shantilal Bramhbhatt 4. Aggrieved by the appellate order passed by ld. CIT(A), Revenue has now come in appeal before the Tribunal . The ld. DR drew our attention to the assessment order and submitted that AO has rightly made the additions. The ld. DR submitted that the ld. CIT(A) erred in deleting the additions. The ld. DR relied upon the assessment order passed by the AO and submitted that no interest is paid by the assessee on these unsecured loans which stood added by the AO< and there are no evidences on record as to when these loans were repaid by the assessee. It was submitted that these unsecured loans raised by the assessee are not genuine and prayers were made to uphold the additions as were made by the AO.

4.2 The Ld. Counsel for the assessee, on the other hand , submitted that additions were made by the AO under section 68 of the Act. He drew our attention to the assessment order passed by the AO as well as to the appellate order passed by ld. CIT(A) order. It was submitted that opening balances which were infact unsecured loans raised in earlier years were also added by the AO under section 68 of the Act, which is not permissible. The ld. Counsel for the assessee relied upon the judgment of Hon’ble Gujarat High Court in the case of CIT v. Jagat Kumar Satishbhai Patel (2014) 45 taxman.com 441(Guj HC). It was submitted that the loans were raised from friends and relatives and no interest was payable. It was submitted that the assessee has discharged its onus, and the Ld. CIT(A) has rightly given the relief. It was submitted that the assessee has given the PAN /Addresses of the unsecured loan providers, and no enquiry was made by the AO. Opening balances were even added by the AO which represented the loans raised in the preceding year. It was submitted that confirmations were submitted, copies of ITR, PAN and addresses were submitted. No notices u/s 133(6) were issued nor any summons u/s 131 were issued by the AO. The AO did not do any enquiries with respect to unsecured loans raised by the assessee. It was submitted that the assessee has discharged its onus . The assessee cannot be asked to prove source of source. The ld. CIT(A) has appreciated the same and rightly given the relief , were the contentions of the ld. Sh. Sureshchandra Shantilal Bramhbhatt Counsel for the assessee. The assessee prayed that the assessee be allowed to file written submissions summarizing arguments and that these unsecured loans were paid subsequently . The assessee later filed the written submissions with the Registry which were taken on record and considered by us while adjudicating this appeal. The assessee has also filed paper book containing judicial case laws relied upon in his support.

5.We have carefully considered rival contentions and perused the material on record including written submissions filed and case laws relied upon. The controversy in this appeal is in the narrow range and concerns with the additions to the tune of Rs. 2,09,50,000/- made by the AO u/s 68 of the 1961 Act w.r.t. unsecured loans raised by the assessee. The ld. CIT(A) has deleted the entire additions. We have carefully gone through the submissions filed by the assessee along with evidences, before the AO as well before ld. CIT(A) which are filed before us in the form of paper book by the assessee. The additions have been made by the AO by invoking provisions of Section 68 which deals with unexplained cash credits in the books of the assessee maintained for any previous year , and it will be profitable to reproduce provisions of Section 68 as it stood at the relevant time , as under:

Cash credits.

Sh. Sureshchandra Shantilal Bramhbhatt Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] Thus, it could be seen that Section 68 deals with unexplained cash credits in the books maintained by the assessee for any previous year. The onus is on the assessee to prove satisfactorily nature and source thereof of the said credit. The assessee is required to satisfactorily prove identity and creditworthiness of the creditors as well genuineness of the transaction. Before proceeding further, it would be relevant to deal with the broad contentions raised by the assessee. The first contention of the assessee that no additions can be made by Revenue u/s 68 for the impugned assessment year w.r.t. unsecured loans raised by the assessee in the earlier years is correct , and we concur with the said contention of the assessee that with respect to loans raised in the earlier years no additions can be made during the impugned assessment year, while the addition can be made by Revenue for those years in which the amount stood credited in the books maintained by the assessee for those years. Further, the assessee has raised the contention that the assessee has made certain advances and not accepted unsecured loans , and the AO had erred in treating the said advances granted by the assessee as unexplained cash credit by invoking provisions of Section 68, we again concur with the contentions of the assessee. On perusal of the evidences/written submissions filed before the AO and the assessment order passed by the AO, we found that no such contentions w.r.t. advances granted as well unsecured loans raised in the earlier years, were taken before the AO while the same were taken for the first time before the ld. CIT(A). The assessee filed details/evidences before ld. CIT(A) for the first time w.r.t. both these contentions , but the ld. CIT(A) did not call for the remand report from the AO, and thus , there is a breach of Rule 46A of the Income-tax Rules, 1962. The details/evidences filed for the first time before ld. CIT(A) w.r.t. the additions made u/s 68 w.r.t. advances granted as well unsecured loans raised in the preceding years, have not stood the verification by the AO. Rule 46A is not merely an empty formality.

Sh. Sureshchandra Shantilal Bramhbhatt Rule 46A of the 1962 is reproduced hereunder and sub-rule 3 of Rule 46A is relevant: “Production of additional evidence before the [Joint Commissioner] (Appeals)] [and Commissioner (Appeals)]. 46A. (1) The appellant shall not be entitled to produce before the [Joint Commissioner] (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely :— (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the [Joint Commissioner] (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The [Joint Commissioner] (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity— (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Joint Commissioner] (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]” Similarly, for the remaining additions to the tune of Rs. 1,01,00,000/- as were made by the AO, we have observed that the assessee has merely filed confirmations from the parties and in case of loans raised from Ms. Nidhi Vikas Borat even confirmations was not filed . The assessee did filed certain additional evidences before ld. CIT(A) 15 Sh. Sureshchandra Shantilal Bramhbhatt by way of return of income and bank statement of the lenders , but the ld. CIT(A) has not called for the remand report from the AO, and thus , there is a breach of Rule 46A of the Income-tax Rules, 1962. The details/evidences filed for the first time before ld. CIT(A) has not stood the verification by the AO. Rule 46A is not merely an empty formality. The onus is on the assessee to prove satisfactorily nature and source thereof , and the assessee is required to prove three ingredients of Section 68, viz. identity and creditworthiness of the creditor as well genuineness of the transaction. In our considered view, the onus is on the assessee to prove these three ingredients of Section 68. The onus was not discharged by the assessee. Under the facts and circumstances of the case and in the interest of justice , it will be fit and proper , if the appellate order passed by ld. CIT(A) is set aside and the matter is restored back to the file of the AO for fresh adjudication w.r.t. additions of Rs. 2,09,50,000/- made by the AO. We clarify that we have not commented on the merits of the issue in this appeal, and all the contentions are kept open. The assessee is directed to produce all relevant material including relied upon case laws before the AO in set aside remand proceedings, who shall consider such evidences etc. on merits in accordance with law. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in set aside remand proceedings. The appeal of the Revenue is allowed for statistical purposes. We order accordingly.