THE ACIT, VAPI CIRCLE, VAPI vs. M/S. HOTEL SEA VIEW PVT. LTD., NANI DAMAN

आदेश / O R D E R

PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal by the department against the order of the Commissioner of Income Tax(Appeals)-Valsad, dated 28/03/2013, in the matter of assessment under section 143(3) r.w.s. 147 of the Income tax Act, 1961 (‘the Act hereinafter’), for the Assessment Year (AY) 2007- 08, on the following Grounds:

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 2 - i. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.20,16,336/- made by AO on account of sundry creditors. ii. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.69,79,362/- made by AO on account of various expenses being 25% of the total expenses. iii. On the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in deleting the addition of Rs.16,75,000/- ,made by AO on account of unsecured loans. iv. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.1,05,84,968/- made by AO on account of cash deposits.

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 3 - Rs.1,05,84,968/- on account of sundry creditors, disallowance of various expenses, unsecured loans and cash deposits respectively.

2.2 The assessee is engaged in the business of running of Hotel. The ITO, Ward-2(2), Thane had informed that Shri Mihir Sameer Srakar, an employee of M/s. Hotel Sea View Pvt. Limited, Daman has deposited Rs.1,00,78,826/- and Rs.5,06,142/- in two savings bank account respectively. The employee told that the above said amount pertains to the Hotel Sea View. Therefore, proceedings u/s.147 were initiated after recording the reasons for doing so and notice u/s.148 was issued and served upon the assessee. During the course of assessment proceedings, the assessee had been given more than sufficient opportunity to explain its case but the assessee failed to avail them. The assessee did not reply to any letters or statutory notices issued by the department hence, the assessee had failed to discharge his statutory obligation. The assessee had not produced any details during the assessment proceedings, therefore, the assessment proceedings were finalized u/s.144 r.w.s. 147 of the Act. The AO made addition of Rs.25,73,528/- on account of sundry creditors. The AO made disallowance of an amount of Rs.69,88,920/- (25% of Rs.2,79,55,681/-) and added to the total income on account of various expenses. The AO held cash credit of Rs.16,75,000/- for unsecured loans to be non genuine cash credits and added to the total income. The AO added Rs.1,05,84,968/- to the total income on account of cash credits as

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 4 - per the letter of ITO, Ward-2(2), Thane and the assessee had not proved the genuineness of source of cash deposits.

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 5 - 147 of the Act, made addition of Rs.25,73,528/- in respect of sundry creditors for want of requisite details. Since assessee placed additional evidences before CIT(A), a remand report was called for and after considering such remand report as well as assessee's submissions, learned CIT(A) confirmed addition of Rs.5,57,192/- and deleted balance addition of Rs.20,16,336/- (i.e. Rs.25,73,528 - Rs.5,57,192) against which Department is in appeal. At this stage, it is clarified that AO had furnished two remand reports viz. Interim Remand Report dated 08/02/2013 and same is part of Pages. 19-23 of Paper Book and final Remand Report dated 12/03/2013 and same is part of Paper Book at Pages. 29-34. Rejoinder to such remand reports are placed at Pgs.24-28 of Paper Book and Pgs.35-46 of Paper Book respectively. At the remand stage, AO carried out three types of investigation as follows same are part of Pages.29-34 @ 30-32 of Paper Book: � Firstly, AO issued summons to four major creditors; � Secondly, he probed into outstanding sum of Rs.5,57,192/- in the name of Smt. Dhaniben Kalanbhai Tandel, Prop. Daman Fish Centre. � Thirdly, he issued letters u/s.133(6) to 54 persons in whose case amount outstanding was Rs. 1000/- or more. As regards four major creditors, AO had reservations only w.r.t. outstanding amount of Rs.1,99,182/- in the name of “Yogendrakumar

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 6 - Gopichand, Prop, of Agarwal Kirana Stores'' same is mentioned at Pages. 29-34 @ 31 of Paper Book. AO also stated that Yogendra kumar’s balance in assessee's books is Rs.1,99,182/- whereas, as per statement of Yogendra kumar, assessee’s balance in his books was approximately Rs.1,50,000/- to Rs.1,60,000/-. Thus, there was a discrepancy in the amount which calls for the impugned addition. Learned AR stated that AO failed to appreciate the following important points: � Yogendrakumar appeared before AO and admitted the factum of transactions with the assessee which established his identity. � He accepted that approximate balance of assessee in his books as at Rs.1,99,182/- as appearing in assessee’s books in his name. Once the concerned person admits that there is balance in the name of assessee in his books of accounts, no addition can be made in respect of sum outstanding in the name of such person in assessee’s books. As regards minor discrepancy in the amount, statement of Yogendrakumar was being recorded in the year 2013 and he was being asked about balance as at 31/03/2017 i.e. almost 5 years old balance. It is quite obvious that a person may not be able to remember the exact amount standing in assessee’s name. However, range given by him is near to actual amount.

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 7 - So in our considered opinion CIT(A) has rightly deleted addition in respect of amount outstanding in the name of Yogendrakumar Gopichand. As regards outstanding sum of Rs.5,57,192/- in the name of Smt. Dhaniben Kalanbhai Tandel, Prop. Daman Fish Centre, CIT(A) has confirmed the said addition and the assessee is not in appeal and same is mentioned at Page No.9 of CIT(A)’s order. As regards letter u/s.133(6) issued to 54 persons in whose case amount outstanding was Rs.1000/- or more, all the concerned persons complied with letters by issued AO except four creditors aggregating to Rs.26,350/- same is at page No.29 to 34 @ 32 of Paper Book. AO failed to appreciate that all the other creditors had duly complied with his notice and only four creditors failed to revert to AO. Aggregate balance of Rs.26,350/- appearing in the name of such creditors is meager (approx. 1.02%) as compared to total creditors of Rs.25,73,528/- Learned AR further stated that the assessee is in the hotel business and it quite possible that some of the creditors, not major ones, may default in replying to AO's notice u/s.133(6). However, considering the facts in toto, especially the fact that major creditors have positively replied to AO, no addition is called for. Accordingly, CIT(A) has rightly deleted addition.

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 8 - Learned AR cited a judgment "CIT vs. Bhogilal Ramjibhai Atara - (2014) 43 taxmann.com 55 (Gujarat)" in which, it is a settled law that, even if genuineness of creditors is under serious doubt, no addition can be made u/s 41(1).

4.2 So far deleting addition of Rs.69,79,362/- made on account of various expenses being 25% of total expenses are concerned in Asst. Order same is at Page No.4 & 5, Para 7 to 7.2 and CIT has dealt the matter at Page No.10 & 11, Para 7. AO made addition of Rs.69,88,920/- being 25% of total expenses of Rs.2,79,55,681/- for want of supporting evidences. At the remand stage, assessee placed additional evidences in support of such expenses. After perusal of the same, AO stated in the remand report that evidences in respect of expenses aggregating to Rs.9,558/- are not on record and hence, the same may be confirmed at Pages No.29 to 34 @32 to 33 of Paper Book. Hence, CIT(A) confirmed addition of Rs.9,558/- and deleted Rs.69,79,362/- (Rs.69,88,920 - Rs.9,558). It is also submitted by the learned AR that assessee had placed on record sufficient evidences in support of such expenses and verifying the same, AO concluded that expenses aggregating to Rs.9,558/- only have not been supported by any evidence. To that extent, addition has already been confirmed by CIT(A) and assessee is not in appeal.

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 9 - Once AO himself is admits in the remand report that expenses aggregating to Rs.69,79,362/- are backed by documentary evidences and chooses not to comment on the same, it is not proper far the Department to challenge such issue in appeal. Assessee’s books of accounts are also duly audited and same in at Pages 47 to 70 of Paper Book. So in our considered opinion, in the light of the above CIT(A) has rightly deleted impugned addition.

4.3 Deleting addition of Rs.16,75,000/- made on account of unsecured loans are concerned. Same is mentioned in AO at Page No.5 & 6, Para 8 to 8.2 and CIT has dealt this matter at Page No. 11 to 13, Para 7 to 7.3. AO made addition of Rs.16,75,000/- in respect of unsecured loans received from C.M. Kotak for want of requisite details. At remand stage, assessee had placed on record confirmation of C.M. Kotak as is evident from remand report at Pgs.29 to 34 @ 33 of Paper Book. However, AO simply stated that it is merely a self-made declaration from Shri C.M. Kotak and hence, assessee has failed to prove its claim of outstanding liability. AO has not pointed out as to what further details was expecting so as to prove genuineness of such unsecured loans other than self-made voucher. Further, such confirmation is not a self-made voucher at assessee's end. It is "third- party evidence" and is very well credible in the eye of law. Learned AR

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 10 - further stated following are some of the other vital aspects w.r.t. unsecured loans obtained from Shri C.M. Kotak same is at Page 13, Para 7.3 of CIT(A)'s order: � Shri C.M. Kotak gave loan to the assessee company by cheque from Bank of Maharashtra and Punjab Ltd., now merged with Punjab National Bank; � Assessee is regularly paying interest on such loan; � Shri C.M. Kotak has been showing such interest income in his return of income filed before the authorities; � Since A.Y.06-07, Department has been allowing interest expenditure claimed by the assessee; Thus, there remains no doubt as to such unsecured loan being not genuine. In case AO had any doubt in connection with such unsecured loan, it was open for him to carry out further inquiries with Shri C.M. Kotak. However, AO chose not to do anything of such sort. In such a scenario, AO could not have added the impugned sum in assessee's hands. Section 68 doesn't require an assessee to prove source of the source of deposits. Hence, no addition is called for u/s.68. Reliance is placed on: � DCIT vs. Rohini Builders 256 ITR 360 (Guj.) � Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj.) � CIT vs. Pragati Co. op. Bank Ltd. 278 ITR 170 (Guj.) � CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC)

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 11 - In our considered opinion, in light of the above, CIT(A) has rightly deleted the impugned addition.

4.4 So far deleting addition of Rs.1,05,84,968/- made on account of cash deposits are concerned and same is mention in AO at Page No.6 & 7, Para 9 & 9.1 and learned CIT dealt the matter at Page No.13 to 19, Para 8 to 8.3.2. AO found that cash aggregating to Rs.1,05,84,968/- was deposited in two bank accounts held with ICICI Bank, Mumbai in the name of Mihir Sameer Sarkar, an employee of the assessee. AO was of the view that assessee had diverted its unaccounted income through its employee and hence, AO made addition of Rs.1,05,84,968/- as assessee's own income. At the remand stage, AO issued summons to Mihir Sarkar u/s.131 and recorded his statement on oath wherein, Mihir Sarkar stated as follows at Pgs.29 to 34 @ 33 to 34 of Paper Book: � He was working as marketing manager of the assessee at Mumbai; Because of lack of address proof of Mumbai, bank account could not be opened in the name of the assessee company at Mumbai and hence, an account was opened in his name and major day-to-day financial transactions of the assessee company were carried out through the said bank account; � Financial transactions done through the said account aggregated to Rs.62,36,670/- and not Rs. 1,05,84,968/-. Bifurcation of cash and

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 12 - cheque aggregating to Rs.62,36,670/- (i.e. Cash Rs.19,48,390/- and Cheque Rs.42,88,280/-) deposited in such accounts was submitted; AO brushed aside the aforesaid statement by merely stating that assessee is a private company engaged in the business of hospitality business and hence, it is not possible that it could not open bank account at Mumbai due to lack of address proof. AO failed to appreciate the following vital aspects in the assessee's case at Para 8.3.2, Pgs.18 & 19 of CIT(A)'s order: � Assessee was unable to open a bank account in its own name for want of address proof in the first year of business at Mumbai and hence, personal bank account of Mihir Sarkar, marketing manager of the assessee, was used for the business transactions. � Amount recorded in the bank accounts of Mihir Sarkar has been used for assessee's business purpose and sales have been recorded in assessee's books of accounts; � There is nothing on record to suggest that the amount deposited in bank account of Mihir Sarkar has not been reflected in assessee's regular books of accounts; � AO has not rebutted the fact that amount deposited in such bank accounts aggregated to Rs.62,36,670/- and not Rs. 1,05,84,968/-; � AO of Mihir Sarkar has also given such findings while framing assessment u/s.143(3) in the case of Mihir Sarkar;

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 13 - In light of the above, amount deposited in bank account of Mihir Sarkar has been duly reflected in assessee's books of accounts and hence, the said amount, by no stretch of imagination, can be treated as unaccounted. It was merely on account of circumstances beyond assessee's control; assessee chose to use personal bank account of Mihir Sarkar for its business. However, once such deposits form part of sales of the assessee and profit arising thereon has been offered to tax, there is no point in taxing part of such sales again by treating the same as unaccounted. In light of the above, CIT(A) has rightly deleted the impugned addition.

Sd/- Sd/- एन.के. �ब�लैया महावीर �साद (लेखा सद�य) (�या�यक सद�य) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad; Dated 22/08/2017 Priti Yadav, Sr.PS

ITA No.1615/Ahd/2013 ACIT vs. Hotel Sea view Pvt. Ltd. Asst.Year –2007-08 - 14 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Valsad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy 1. Date of dictation 18/08/2017 (dictation-pad pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …21/08/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………