SHRI ASHOK B PANCHANI,SURAT vs. INCOME TAX OFFICER WARD 3(3)(1), SURAT

Grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.21,00,000/- as unexplained cash credit on account of unsecured loan of Rs.18,00,000/- and gift received of Rs.3,00,000/-. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in making disallowance of Rs.13,56,600/- out of labour expenses.

We shall take ground No.1 which relates to addition of Rs.21,00,000/- on account of unexplained cash credit. So far as this ground of appeal is concerned, the relevant material facts are like this. The assessee before us is an Individual. During the year under consideration, the assessee was engaged in the business of construction in the name and style of his proprietary concern viz. Rajvi Construction. Further, the assessee also engaged in the business of embroidery job work in the name and style of his proprietary concern viz. Maruti Creation. Apart from these, the assessee was a partner in two partnership firms viz. Shreenathji Developers and Om Developers. In the Financial Year 2011-12, the assessee has purchased House Property at A/9, 11 and 12, Gajanan Society, Punagam and land situated at Varachha with other co-owners wherein his share in the same were Rs.2,64,220/- and Rs.1,65,863/- respectively. The assessing officer observed that during the year under consideration, the assessee has shown to have received unsecured loan from the following parties: Sr. No. Name of the lenders S/Shri Amount of loan (Rs.) Interest paid 1 Hasmukhbhai D. Panchani 700000/- -- 2 Smt. Ilaben A. Panchani 300000/- 3740/- 3 M/s. Avadh onstruction 1800000/- -- Total 2800000/- -- The assessee was requested to furnish the complete details with respect to the lenders of the unsecured loans. Therefore, the assessing officer issued show cause notice dated 24.02.2015 to explain the transaction. In response, the assessee submitted written submission on 04.03.2015 to the assessing officer. Having gone through the written submission of the assessee, the assessing officer observed that assessee has failed to produce the details with respect to the unsecured loans with respect to M/s Avadh Construction and the gift received. To allow the claim of the assessee as genuine, the following conditions are to be fulfilled: (1) Identity of the lender

Further, the assessee has received gift of Rs.3,00,000/- during the year under consideration from Shri Dhirubhai Bhimjibhai Malani. The assessee has simply furnished gift deed in this respect and nothing else. In spite of ample opportunities provided, the assessee failed to furnish any explanation/details with respect to the gift received from Shri Dhirubhai Bhimjibhai Malani. So, in absence of any explanation/details, the gift claimed to have been received from Shri Dhirubhai Bhimjibhai Malani amounting to Rs.30,00,000/- was treated by AO as unexplained in the hands of the assessee and added to the total income of the assessee. So, the total disallowance of unexplained credits in the hands of the assessee at Rs.21,00,000/- [Rs.18,00,000/- on account of unsecured loans + Rs.3,00,000/- on account of unexplained gift] was added to the total income of the assessee.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer.

Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal before us.

Shri Sapnesh Sheth, Learned Counsel for the assessee, submitted that during the assessment stage, assessee has submitted the relevant bank statement and copy of confirmation of balance of M/s. Avadh Construction and copy for agreement for

On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 9. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. The ld CIT(A) observed that non- furnishing of details of lender before the AO, during assessment stage creates suspicion regarding the genuineness of the transaction. The explanation that lender was not co-operative is not acceptable because normally, a person who has invested or advanced such a high amount always co - operate as he has to protect his stake. The ld CIT(A) further observed that nature of the amount received i.e. whether unsecured loan or advanced for purchase of Plant and Machinery is immaterial. What was required by the appellant was to file confirmations, copy of bank account of the lenders, ITRs, audit report and balance sheet to show that said loan is reflected in the bank statements as well as financial statements of the lender. The assessee has filed copy of bank account of the lender alongwith confirmations. However, assessee has failed to file the Income Tax Return and the Balance sheet, profit and loss account and audit report. We note that Income Tax Return, and balance sheet should show that said loan is reflected in the bank statements as well as financial statements of the lender. Therefore, we are of the view that unsecured loan shown as outstanding claimed to have received from Avadh Construction amounting to Rs.18,00,000/- has not been explained by the assessee properly.

In the result, ground No.1 raised by the assessee is partly allowed for statistical purposes.

Coming to ground No.2 raised by the assessee, which relates to addition of Rs.13,56,600/- on account of labour expenses. Succinct facts qua ground No.2 are that during the assessment proceedings, the assessee had furnished the bills and vouchers to the tune of Rs.1,82,110/- only for labour expenses but failed to furnish the balance bills/vouchers to support his total claim of labour expenses of Rs.l5,38,710/-, as claimed in the Profit & Loss account with respect to Maruti Creation. Even after repeated requests and ample opportunities the assessee failed to

On the other hand, Ld. DR for the Revenue submitted that assessee has not produced bills/vouchers and other supporting evidences to show that assessee has incurred labour expenses. With help of profit and loss account, balance sheet, the genuineness of labour expenses cannot be examined. 14. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We find merit in the submission of ld DR for the Revenue, as he rightly pointed out that assessee has not produced bills/vouchers and other supporting evidences to show that labour expenses have incurred. If the expenses are shown in profit and loss account, without evidences such as bills/vouchers, the said labour expenses should be disallowed, as we aware that purpose of scrutiny assessment under section 143(3) is to examine the labour expenses by assessing officer with help of evidences such as bills, vouchers, payment by cash or by cheque etc. However, assessee has failed to produce these evidences.

In the result, ground No.2 raised by the assessee is partly allowed.

In combined result, assessee’s appeal is partly allowed for statistical purposes.