ARVINDBHAI DHANJIBHAI VAGHASIYA,SURAT vs. ITO, WARD-3(2)(1), SURAT

Grounds of appeal

raised by assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned ld. CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs.8,00,000/- on account of unexplained cash credit.

In response to the above show cause notice, the assessee, vide his letter dated 21.12.2017 submitted written submission before the assessing, which is reproduced below: "Regarding creditworthiness of lenders named Gokulbhai Dhanjibhai HUF and Geetaben Arvindbhai Vaghasiya from whom unsecured loan taken, I would like to state that these parties are filing income tax return regularly since last many years and having good amount of saving on hand, copy of cash book alongwith profit and loss a/c and balance sheet for A. Y. 2015-16 & A.Y. 2014-15 as required by your good self are enclosed in ‘Annexure-6’ for your kind consideration."

However, assessing officer rejected the contention of the assessee and held that assessee has failed to prove the genuineness of the transaction, therefore the amount of Rs.8,00,000/-, was added to the total income of the assessee u/s 68 of the Income Tax Act.

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

Shri Mehul Shah, Learned Counsel for the assessee, pleads that assessee files return of income under section 44AD of the Act and during the year under consideration he took small loan from his wife to purchase the property. The assessee, in order to prove the genuineness of the transaction, has filed copy of balance sheet and profit and loss account, bank statement, copy of PAN. Thus, ld Counsel contended that assessee has filed all possible evidences and therefore addition made by the Assessing Officer may be deleted.

On the other hand, the Learned Departmental Representative (ld. DR) for the Revenue submits that assessee has meager income therefore, it is not possible for the assessee to make such big investment. The assessee has produced fabricated profit Page | 3

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee had purchased two immovable property for Rs.18,14,768/- and has taken loan of Rs.4,00,000/- each from two persons Gokulbhai Dhanjibhai HUF and Geetaben Arvindbhai Vaghasiya and the balance amount of Rs.7,55,359/- was paid in cash out of cash in hand and Rs.2,49,409/- was paid by cheque. The assessing officer observed that both the lender had deposited Rs.4,00,000/- each in the bank account just before the withdrawal of cheque in form of unsecured loans. The AO held that the analysis of the ITR filed by the both the lenders revealed they did not have creditworthiness to provide loans to others. Therefore, AO made the addition u/s 68 of Rs.8,00,000/-.

We note that assessing officer has nowhere proved that amount deposited in bank to the tune of Rs.4,00,000/- belongs to assessee. It was the Lenders money and not the assessee. The ld DR submits before us that assessee has produced fabricated profit and loss account and balance sheet, however, he has failed to point out that which figure in the profit and loss account and balance sheet, is false and untrue. Just to say that profit and loss account and balance sheet are fabricated, is not sufficient, ld DR has to point out the particular figure which is false and not supported by evidence. Therefore, we do not agree with ld DR to the effect that assessee has submitted fabricated profit and loss account and balance sheet.

We note that assessee submitted copy of return of income, balance sheet, profit and loss account, capital account, PAN card, bank statement of the lender to prove the genuineness of the transaction. It is submitted by ld Counsel that the lenders has sufficient cash balance which was reflected in income therefore mere deposit of cash in the bank account should not be taken adversely and treating the transactions as Assessment Year. 2015-16 Arvindbhai D. Vaghasiya not genuine. We note that assessee has been filing his return of income under section 44AD of the Act, therefore assessee, does not suppose to maintain books of accounts. However, the assessee was maintaining memorandum books of accounts for his own purpose and therefore assessee produced balance sheet and profit and loss account and cash book before the Assessing Officer. The Assessing Officer did not find any mistake in these evidences /documents. The Assessing Officer has failed to point out mistakes in the books of accounts, except to say that profit and loss account and balance sheet are fabricated. The AO ought to have examined all these details, balance sheet, profit and loss account and refuted / rejected them, with a cogent adverse findings and discernable line of reasoning, in order to arrive at a conclusion and to make the addition u/s 68 of the Income Tax Act. On the contrary, the AO has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises. Therefore, addition made by the assessing officer should be deleted.

We note that Hon'ble High Court of Gujarat in the case of Ranchod Jivabhai Nakhava [(2012) 21 tamxann.com 275 (Guj.)] has held on the identical facts as follows: “Once the assessee has established that he has taken money by way of account payee cheques from the lenders who are all income tax assessees whose PAN have been disclosed, the initial burden under section 68 was discharged. It further appears that the assessee had also produced confirmation letters given by those lenders. [Para 15] 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 returns they had shown existence of such amount of money and had further shown that those amount 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, the Assessing Officer does not follow the principle laid down under section 68. [Para 16] 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.

In the result, appeal of the assessee is allowed.