ITO, W-1(3), CHANDIGARH vs. SMT. RENU ANAND, CHANDIGARH

The return of income declaring income of Rs. 10,85,000/- was filed by the assessee on 28/09/2013 which was processed as such. That the case was selected through CASS for the limited scrutiny to 3. examine the large investment in property as compared to total income declared by the assessee in her return of income. Accordingly, notices under section 143(2) was issued on 02/09/2014 by the Dy. CIT Circle1(1) Chandigarh

Chandigarh.

That during the year the assessee made investment in purchase of property i.e; House No. A-16, Mayfair Garden, New Delhi of Rs. 20 Crores plus Stamp Duty.

That the explanation of the “sources” was as under: S. N. Particulars

Vide DD.895929 dated 31.10.2012 17,25,00,000/- Financing by PNB issued by PNB Housing Finance Ltd as Housing Finance Ltd. per Loan sanction dated 21.08.2012. (purchase consideration) Total 21,00,00,000/-

That the assessee has stated that amount of Rs. 1.95 Crores was remitted through RTGS to the seller on 23/07/2012 from Indusind Bank by raising unsecured loan fromMr. Gagan Suri Which was repaid in March 2013. That the loaner Mr. Gagan Suri has filed confirmation that he has paid short term loan of Rs. 7,12,50,000/- from his Indusind Bank Account to Mr. Onkar Anand, husband of the assessee on 18/07/2012. That in order to verify the unsecured loan given by loaner Shri Gagan Suri was examined on 15/02/2016. That during the course of the examination, the loaner was specifically asked to furnish the source of the availability of funds with him. It was stated by him that he has received the funding from NSEL and was not able to produce any documentary evidence. That however on 22/06/2016 the copy of the current account of loaner and that of his proprietorship concern M/s Yathuri Associates and NSEL Settlement account of M/s Yathuri Associates were filed but loaner Shri Gagan Suri did not attend the office of Ld. AO.

That the Counsel of the assessee on 22/02/2016 however admitted that the loaner Shri Gagan Suri has not filed Income Tax Return and not got his accounts audited from any practicing CA and also stated that his books of accounts are not available as the same are in the custody of the investigation agency.

That in view of the above factual facts, in order to verify the case in details, the necessary approval was sought by the Ld. AO from PCIT-1, Chandigarh to convert the case under limitedscrutiny to the comprehensive scrutiny which was duly accorded on 03/03/2016. 11. The Ld. AO vide letter dt. 15/03/2016 called upon the assessee to show cause why the amount of Rs. 7,12,50,000/- claimed to have been received from Shri Gagan Suri be not treated as undisclosed income of the assessee as no credit worthiness to receive the amount as advance (short term loan) have been proved. The relevant contents of the letter is reproduced as hereunder: "During the assessment proceedings it is noted that you have claimed to receive unsecured loan amounting to Rs.7,12,50,000/- from Sh. Gagan Suri. Bank account of the loaner has been examined and it is noticed that there are entries of credit and debit of small amounts only. It is also relevant that whenever there is credit entry, the almost same amount is debited on the same day or the next day leaving nominal closing balance only. Also the entry of unsecured loan amounting to Rs. 7,12,50,000/- stated to be given by the loaner was credited in your account on 18.07.2012 and the proceeds stands transferred to your account on the same day. Similarly the same amount received back by the loaner from the transfer proceeds out of the your joint account with late Sh. Onkar Anand on 01.03.2013 and 2.03.2013 resulting in the squared up of account during the year itself with the same amount. To verify the unsecured loan given by loaner, Sh. Gagan Suri was examined on 15.02.2016. During the course of examination, the loaner was specifically asked to furnish the source of availability of funds with him. It has been stated by him that he has received the funding from NSEL and not able to produce any documentary evidence as of now and request for grant of time till 19.02.2016. Thereafter on 22.02.2016 copy of current account of loaner and his proprietorship concern M/s Yathuri Associates and NSEL settlement account of M/s Yathuri Associates were filed but loaner Sh. Cagan Suri did not attend the office. It has been found that the loaner has not filed income tax return and not got his accounts audited from any practicing CA. He also stated that his books of accounts are not available as the same are in the custody of investigation agencies. In the absence of any income tax return, audit report and books of accounts, the credit worthiness of the loaner is not established. Furthermore the loaner Sh. Gagan Suri has stated that prior to financial 2012-13 he was engaged in the business of manufacturing of carry bags and he discontinued that business about the closing of the year 2011 as he suffered losses and thereafter shifted to the business of trading of sugar. Further he submitted that during the financial 2012-13 relevant to A. Y 2013-14 tentative turnover was about 10-12 Cr. from trading of Sugar. In view of all these facts, it can be safely inferred that the loaner Sh. Gagan Suri from whom unsecured loan of Rs.7,12,50,000/-claimed to have been received, had 5 no credit worthiness to advance such huge amount and is proposed to be assessed as your undisclosed income. Photocopy of statement of Sh. Gagan Suri is enclosed.

It Is correct whatever he has stated In his statement with the department. He became member of the exchange on 7.5.2012 as per the application form submitted by him with exchange, a copy of which is enclosed herewith for your record. He has stated that his tentative turnover on account of sugar trade was Rs 10-12 Crore in FY2012-13 which excludes his turnover with the exchange. The receipt and payment of funds from NSEL in the NSEL settlement account is sufficient to prove his credit worthiness being a member of the exchange.

Merely non filing of income tax return and unable to get the accounts audited does not mean that he has unexplained source of income and liable to be taxed in the hands of assessee Mrs. Renu Anand, being recipient of unsecured loan from Mr Gagan Suri The documents enclosed herewith are self explanatory in nature and shows valid source of payment hence is not liable to be taxed in hands of assessee under section 68 of the Income Tax Act."

The Ld. AO in his assessment order dt. 29/03/2016 has observed as under: The reply filed by the assessee has been considered. It is relevant to mention here that in order to verify the transaction does not fall within the preview of section 68, the following conditions have to be satisfied:-

The Ld. AO basis above has held as under in his assessment order dated 29/03/2016

The Ld. AO in his assessment order dt. 29/03/2016 on page 11 has held and observed as office note the following: The information is being passed on to the assessing officer, 1TO, Ward 3(5), Chandigarh of Mr.Gagan Suri having PAN: ALDPS3238A with regard to his claim of advancing the amount of Rs.7,12,50,000/- during F.Y. 2012-13 relevant to A.Y. 201314 to my assessee for further necessary action as the aforesaid person has not filed the Income tax return for the A.Y. 2013-14 and onwards.

That the Assessee being aggrieved by the assessment order dt. 29/03/2016 prefers first appeal before the Ld. CIT(A) who by the impugned order has allowed the appeal of the assessee. Some of his observations are reproduced below:

3 I have perused the assessment order and examined the reply of the assessee. The appellant along with her late husband Sh. Onkar Anand purchased a property in Hauz Khas, New Delhi for Rs. 20 crores. The payment for the purchase was made from saving bank account with Indusind Bank which was in the joint name of Late Sh. Onkar Anand and the appellant. The Assessing Officer verified the sources of these payments and came to the conclusion that a single entry of Rs. 7,12,50,000/- was made from unexplained sources and added it to the income of the appellant u/s 69 and 69A of the Act. The impugned amount was received from the brother of the appellant Sh. Gagan Suri. Sh. Gagan Suri is proprietor of Yathuri Associateswh i ch i s member of National Spot Exchange Ltd. (NSEL). The payment was made from his bank account on18.07.2012. The Assessing Officer examined Sh. Gagan Suri who admitted that he had paid this amount and tried to explain the 9 source. He explained that a sum of Rs. 9,31,38,527/- was transferred to his account from the current account in HDFC from his proprietary firm Yathuri Associates which in turn received Rs. 9,69,05,000/- on 17.07.2012 as a result of settlement with that NSEL. He further submitted that his firm Yathuri Associates had an annual turnover of Rs. 93.93 crores during the year and submitted copies of balance sheet and profit &loss account to the Assessing Officer. He however had not filed return for that particular year. The Assessing Officer did not find that Sh. Gagan Suri creditworthiness was proved because he had not filed his returns for the year, did not produce his books stating them to be in custody of investigating agencies and did not get his books audited. The Assessing Officer further observed that Sh. Gagan Suri has shown his own capital at Rs. 14,47,304/- in his Income Tax Return for the year ending 31.03.2012 (A.Y. 2012-13) which proves that he was man of no means. Sh. Gagan Suri had a huge outstanding liability totaling to Rs. 264.96 crores to be paid to NSEL as per their official website. The Assessing Officer came to the conclusion that Sh. Gagan Suri's creditworthiness is not proved and he was only entry provider. 5.3.1 The arguments of the appellant were that since the property was purchased by Late Sh. Onkar Anand (husband of the appellant) from his' own sources and the name of appellant was added for social security purposes and that in case of a joint account, funds are presumed to belong to first holder or equally to both parties and not exclusively to second holder, therefore the impugned amount could not be treated as income of the appellant. Further, the Ld. AR submitted, that without prejudice to the argument above the case was not covered u/s 69/69A but came under the purview of section 68 of the Act. The appellant argued that from the facts of the case, it is clear that all the requirements with respect to section 68 have been fulfilled. 5.3.2 In my opinion since the appellant is a joint holder of the bank account along with her husband the entire sum received in the account cannot be treated as her unaccounted income. Further, I am of the view that the addition cannot be made under section 69/ 69A of the Act. Since there is a sum credited in the accounts of the appellant, section 68 would come in force. The relevant provisions of section 68 are reproduced below for ready reference:- "Cash credits.

Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:" As per the requirement of section 68, the appellant is required to provide explanation regarding the nature and source of the amount received. Sh. Gagan Suri has admitted before the Assessing Officer that money was paid to the appellant and the same was given by means of RTGS from his bank account. The transaction is through the banking channels. As regards the source of funds, it is seen that Sh. Gagan Suri had sufficient funds in his bank account on the day on which the transaction took place. He had received the money from his proprietor concern which in turn had received money through the NSEL and all the transactions were made through bank. The Assessing Officer has not beenable to prove that the money that Sh. Suri gave to the appellant belongs toher. Even if for a moment it is assumed that Sh. Gagan Sun was man of no means, it does not help the case of the revenue as the source of money cannot be traced back to the appellant. Therefore,

In the result, the appeal is allowed.

The Revenue being aggrieved by the “impugned order “ has preferred an appeal before us and has raised following grounds in Form No. 36 which is form of appeal to this Tribunal:

Record of hearing

1 The hearing in the matter took place on 15/10/2024 when the Revenue was represented by Ld. DR ad the assessee was represented by Ld. AR.

2 The Ld. Dr for and on behalf of the Revenue has fully supported the aforesaid assessment order of Ld. AO dated 29/03/2016 were in correct addition of Rs. 7,12,50,000/- has been made.

4 It was then contended by Ld. DR on above factual narration which are all incorporated in the Ld AO’s order dt. 29/03/2016 under section 143(3) that the Ld. AO has tested above parameters vis a vis three important ingredients under section 68 of the Act which are (1) identity of the creditor (2) the capacity of the creditor to advance money (3) genuineness of transaction. The Ld. AO has rightly held that explanation offered that Gagan Suri has 15 received funding from NSEL is not proved by any evidence whatsoever. No ITR is on record of Shri Gagan Suri. No audited balance sheet is on record of Shri Gagan Suri despite voluminous assertion about huge volume of both sugar trading and trading on NSEL.Hence creditworthiness not proved at all. Further against assertion of tentative turnover of 10-12 Crores in sugar during F.Y. 2012-13, A.Y. 2013-14 the loaner Gagan Suri ITR for A.Y. 2012-13 delares total income of Rs. 3,47,330/-, Rs. 2,69,650/-in A.Y 2011-12, Rs. 2,69,000/-in A.Y. 2010-11 and Rs. 4,72,440/- in A.Y 2009-10. No ITR for A.Y 2013-14 and onwards loaner Shri Gagan Suri,lacks credit worthiness to advance loan of Rs. 7,12,50,000/- in legitimate way(good money). Loaner has huge liability towards NSEL. He is defaulter of NSEL to the tune of Rs. 264.96 crores. He is an entry provider and has no creditworthiness. Hence addition of Rs. 7,12,50,000/- rightly made by Ld. AO and his order should be restored.

5 The Ld. DR then contended that the impugned order of Ld. CIT(A) is totally illegal, not proper and is bad in law. It ought to be set aside by this Tribunal as Ld. CIT(A) has miserably failed to appreciate the bare minimum facts of the present case which are gross perse. There is total non consideration of material facts (supra) by the Ld. CIT(A)in his impugned order. The Ld. CIT(A) has allowed the appeal of the assessee without appreciating the core and hard facts of the case. There is no denial by the assessee that she never received the short term loan from Shri Gagan Suri. She has miserably failed to establish source of the original source of money / short term loan as good money. She has failed to establish credit worthiness of the loaner by any material document all by herself. During the course of the 16 assessment proceedings she presents her brother as a source for huge sum of Rs. 7,12,50,000/-. Upon query made to the brother Gagan Suri he too miserably fails to establish his own credit worthiness at the outset and threshold itself of assessment proceedings a little later he turns around and disappear from scence of the assessment proceedings. Here records of the case speaks about his conduct. Be that as it may AR too who represents him/them further fails to establish credit worthiness of Shri Gagan Suri basis legal documents like duly audited balance sheet of his and his concerns. ITR’s speaks that he is a person of no means or less means having genuine and bonafide capacity to lend money / loan worth Rs. 7,12,50,000/- basis genuine and legal documents. Huge turnover of his be in sugar trading or commodity trading is not established on basis of any documents whatsoever. Mere assertion of turnover in crores without any supporting is not sufficient compliance of law on credit worthiness of a person. The Ld. CIT(A) has not correctly appreciated bare facts of the case which are all recorded in the order of Ld. AO dt. 29/03/2016 which were not effectively rebutted in appeal before CIT(A). The Ld. DR effectively submitted that chain of transaction as it relates backward from date of receipt of loan are gross leaving source and source of sources unexplained / unexplainable even though funds have come from normal baking channel. Merely because funds / loan amount has come from banking channel that ipsofacto cannot lend to a inference that source of money is adequately explained. The entire transaction of loan is sham and make believe arrangement solely with a view to evade tax deliberately an approach wholly untenable in lawon basis of facts found by Department of Income Tax.

6 Per contra the Ld. AR of the assessee has supported the impugned order of Ld. CIT(A). They have placed on record of this Tribunal a paper book dt. 05/08/2021 containing pages 1 to 159 under different captions in index to paper book. We have perused the same, very minutely. They have also placed on record another paper book dated 14/10/2024 from pages 1 to 101 wherein copy of assessment order for A.Y 2013-14 of Gagan Suri and papers related to further appeal to CIT(A) are enclosed. We have perused the same carefully. They have placed on record compilation of judgement from page 1 to 51 (not recited at Bar).

7 The Ld. DR vide letter dt. 14/10/2024 has brought to the notice of this Tribunal following: