ACE BUILD TECH,GURGAON vs. ADDI. CIT RANGE-1, GURGAON

The grounds of assesse are as follows:- 1 That the learned Commissioner of Income Tax (Appeals)-1, Gurgaon has erred both in law and on facts in confirming an addition of Rs. 53,00,000/-representing the alleged unexplained cash credit under section 68 of the Act. 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the appellant had duly discharged the onus under section 68 of the Act in terms of identity of the creditors, creditworthiness of the creditors and genuineness of creditors and as such, addition made and confirmed is not in accordance with law and untenable. 1.2 That the conclusion of the learned Commissioner of Income Tax (Appeals) that submissions of the appellant are in contradiction to the facts recorded in the assessment order, is based on incorrect appreciation of facts on record and in any case, conclusions so arrived are misconceived, misplaced and untenable.

1.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the learned Assessing Officer in the remand report has not made any adverse observations vis-a-vis creditworthiness of the creditors then his independent examination without appreciating the evidence placed on record is absolutely misconceived, misplaced, illegal and hence unsustainable. 1.4 That the learned Commissioner of Income Tax (Appeals) has otherwise failed to appreciate that all the creditors were individuals, were duly identifiable and had confirmed the transactions and the entire transaction was through banking channels and their PAN numbers had duly placed on record and therefore, arbitrary approach adopted on account of alleged non-filing of return is fundamentally erroneous and could not be justifiably made a basis to sustain addition under section 68 of the Act. 2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in confirming an addition of Rs. 73,04,678/-representing the alleged difference in receipts as per Form 26AS and contract receipts as per books of accounts of the assessee firm. 2.1 That the learned Commissioner of Income Tax (Appeals) while upholding the addition has failed to appreciate that the reconciliation between the difference between Form 26AS and the books maintained by the appellant which were duly audited had duly been furnished in the course of assessment proceedings/appellate proceedings and therefore, arbitrary rejection of such reconciliation is also misplaced and could not be validly made a basis to sustain notional, hypothetical addition. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that purported difference allegedly was on account of WCT/VAT/Service Tax deducted by the party which are not reflected as income in the Profit & Loss Account maintained by the appellant and therefore, this fundamental accounting methodology -adopted by the appellant accepted over a period of number of years could not be disregarded and therefore, addition so made is not in accordance with law. 2.3 That the finding of the learned Commissioner of Income Tax (Appeals) that no satisfactory evidence was furnished in support of the explanation tendered by the appellant is also not correct and hence untenable. 3 That both the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant and therefore the same are contrary to principles of natural justice and hence vitiated. Ground nos. 1 to 1.4 of assessee 3. The ld. counsel of assessee submitted that the learned Commissioner of Income Tax (Appeals)-1, Gurgaon has erred both in law and on facts in confirming an addition of Rs. 53,00,000/-representing the alleged unexplained cash credit under section 68 of the Act as the appellant had duly discharged the onus under section 68 of the Act in terms of identity of the creditors, creditworthiness of the creditors and genuineness of creditors and as such, addition made and confirmed is not in accordance with law and untenable. He further submitted that the conclusion of the learned Commissioner of Income Tax (Appeals) that submissions of the appellant are in contradiction to the facts recorded in the assessment order, is based on incorrect appreciation of facts on record and in any case, conclusions so arrived are misconceived, misplaced and untenable and thus the ld. CIT(A) has failed to appreciate that once the learned Assessing Officer in the remand report has not made any adverse observations vis-a-vis creditworthiness of the creditors then his independent examination without appreciating the evidence placed on record is absolutely misconceived, misplaced, illegal and hence unsustainable. He also contended that the learned Commissioner of Income Tax (Appeals) has otherwise failed to appreciate that all the creditors were individuals, were duly identifiable and had confirmed the transactions and the entire transaction was through banking channels and their PAN numbers had duly placed on record and therefore, arbitrary approach adopted on account of alleged non-filing of return is fundamentally erroneous and could not be justifiably made a basis to sustain addition under section 68 of the Act.

Drawing our attention towards paras 2.1 to 2.9 of written submissions/synopsis of assessee the ld. counsel submitted that the assessee has duly discharged its onus as per requirement of section 68 of the Act and despite this fact the Assessing Officer made addition and ld. CIT(A) confirmed the same without any justified basis therefore keeping in view various judgments of Hon’ble jurisdictional High Court of P&B & other Hon’ble High Courts and orders of coordinate benches of the Tribunal the addition is not sustainable.

Replying to the above, the ld. Senior DR supported the orders of the authorities below and submitted that the ld. CIT(A) admitted additional evidence of assessee, called remand report from the Assessing Officer and also allowed assessee to file its rejoinder to the remand report and thereafter drawn a sustainable conclusion based on various judgments and orders of coordinate benches that, it is thus a settled law that the onus to prove the creditworthiness the identity of the creditors and genuineness of transactions lies on the assessee and initial burden cast by section 68 of the Act is on assessee involves these elements to be cumulatively proved and in the present case the assessee has failed to discharge such onus therefore orders of the authorities below may kindly be upheld.

Placing rejoinder to the above, the ld. counsel again drew our attention towards pages 96 to 140 of assessee paper books relevant part of written submissions on the issue and submitted that the assessee submitted all sustainable and self speaking evidence before the authorities below and the Assessing Officer discarded the same without any examination and the ld. CIT(A) went on to consider the same in wrong

The ld. counsel also submitted that the findings of ld. CIT(A) in para 4.9 and 4.10 are only basis for upholding the addition wherein the ld. CIT(A) noted failure of assessee before the Assessing Officer in filing documents but did not given his own findings on the voluminous self speaking documentary evidence filed by the assessee and admitted by him under rule 46A of the Rules. He also pointed out that even during remand proceedings the Assessing Officer submitted his reports/comments vide dated 24.02.2015 where he merely object to the wrong PAN numbers of two creditors and also mentioned that as per cheque clearance certificate issued by the bank and submitted by the assessee it is inferred that the assessee has received these amounts from the persons as contended by the assessee and the Assessing Officer, except said observation, have not made any adverse comment on the documentary evidence filed by the assessee. He vehemently contended that the assessee filed correct details including PAN numbers of Smt. Babita Singh and Smt Kavita Dhillon vide submissions dated 17.03.2016 before ld. CIT(A) and he did not point out any defect therein and also did not make any further verification. Therefore in view of judgment of Hon’ble High Court of Delhi in the case of MOD Creations (P) Ltd. vs. ITO 354 ITR 282 (Del) the onus had shifted on to the Assessing Officer or ld. CIT(A) to proof, if it disputed, the genuineness of loans extended to the assessee. He further submitted that as per judgment of Hon’ble High Court of Delhi in the case of CIT vs. Ganeshwari Metal (P) Ltd. 361 ITR 10 (Del) when the assessing officer sits back with the folded hands till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on presumption, then such addition based on such presumptions is not sustainable.

On careful consideration of above submissions, synopsis of assessee and paper book spread over 140 pages we proceed to adjudicate the grievance of assessee. First of all we find it appropriate to reproduce the relevant part of written submissions/synopsis of assessee which is as follows:-

At the very outset, from the orders of the authorities below, we note that the Assessing Officer made additions by observing that the assessee has just filed confirmation letter and no details regarding identity, filing of return and showing their capacity to advance unsecured loan to the assessee and sources have filed nor copies of the bank accounts have been filed and thus the assessee has failed to discharge the onus to prove identity, genuineness and creditworthiness of lenders. From relevant part of first appellate order, we further note that the ld. CIT(A) admitted additional evidence of assessee, called remand report from the Assessing Officer and also allowed assessee to file its rejoinder/reply to the remand report and thereafter, taking on record correct 8

After having noted above analyses of orders of the authorities below now we proceed to evaluate the explanation, documentary evidence and submissions of assessee in the light of case laws and prepositions relied by the ld. counsel of assessee as well as by the ld. CIT(A). From the documents filed by the assessee at pages 96 to 140, at the very outset we note that the assessee submitted copy of confirmation of accounts, copy of ITR for AY 2008-09 & 2009-10, copy of ledger account of, copy of confirmation of account for the period 1.04.2008 to 31.03.2009 and copy of bank account of M/s. Silver Impacts P. Ltd. which clearly establishes identity of said lender and also shows that at the time of advancing loan of Rs. 20 lakh on 22.12.2008 there was sufficient balance in its bank account and we are unable to see any instance of cash deposit immediately before issuing cheque to the assessee company. The copy of ledger account shows that this company that the assessee repaid the part amount of loan of Rs. 18 lakh through banking channel on 05.10.2009 during subsequent AY 2010-11. The bank balance discernable from the copy of bank statement clearly reveals that the said lender did not made any deposit of cash to his bank account prior to providing loan to the assessee. We are not in agreement with the contention of the ld. Senior DR that the small income shown in the return of income raise doubt about its capacity and creditworthiness as it is not the case of the Assessing Officer that it was not having any other funds in his hands to provide unsecured loans to the assessee. Therefore, we clearly observe that the assessee substantiated identity, capacity and creditworthiness, to the extend unsecured loans to the assessee, pertaining to said lender/creditor.

Regarding creditors Smt. Kavita Dhillon and Smt. Babita Singh we note that the assessee has filed copy of confirmations, ledger accounts, copy of cheques of both the lender and copy bank statements showing that the amounts were received through bank. We also note that the Assessing Officer in the remand report objected that their

Regarding creditor Shri Ishwar Singh Janghu we note that the assessee has filed copies of confirmation of accounts, ledger accounts, acknowledgment of return of income for AY 2009-10, bank statement, cheque etc. but the ld. CIT(A) in para 4.9 & 4.10 merely noted the action & conclusion of the Assessing Officer in the assessment as well as remand report and thereafter noted that the issue was specifically examined by him and appellant was asked to furnish evidences with regard to creditworthiness of the creditors but failed to comply. On the other hand, from the documentary evidence filed by the assessee we not that the assessee received Rs. 14 lakh on 31.07.2008 through cheque and the amount of Rs. 9 lakh was repaid during AY 2010-11 and remaining Rs. 5 lakh was repaid during AY 2011-12 leaving the nil credit which again gets support & from the cheques clearance certificate (PB Page no. 2-3). The ld. counsel submitted that Shri Janghu is a senior Army Officer who retired as Brigadier and his capacity and creditworthiness cannot be doubted particularly, when the amounts have been repaid

Regarding fifth and last creditor Smt. Indra Dewan from documents at pages 125 to 140 of paper book we note that the assessee filed copy confirmation of accounts, copy of acknowledgment of return of income for AY 2007-08 and 2010-11 and copy of her bank account and hence confirmation and factum of filing of return of income by this creditor cannot be doubted in absence of any further examination or verification of other credentials of this lender. It is also pertinent to mention that on receipt of said documentary evidences the ld. CIT(A) have not made any further exercise calling upon such lender directly through summon u/s. 131 of the Act or calling the assessee to produce her for examination. From the relevant of first appellate order we note that the ld. CIT(A) simply took on record documentary evidence filed by the assessee and thereafter without any further exercise dismiss the same at the threshold without pointing out any defect or discrepancy therein, merely raising doubt about the truthfulness of the said documentary evidence. Such conduct of ld. CIT(A) falls within the rigour of preposition rendered by Hon’ble High Court of Delhi in the case of CIT vs. Gangeshwari Metal P Ltd. (supra), wherein it was held that when the tax authority/Assessing Officer/CIT(A) after taking on record evidence submitted by the assessee without verifying the same proceeds to make addition u/s. 68 of the Act then such act of omission vitiate the addition.

Therefore, in view of above factual position and logical analyses of basis taken by the authorities below for making and confirming addition and also considering the submission and documentary evidence filed by the assessee, we are unable to agree with the conclusion drawn by the ld. CIT(A) in view of various judgments including judgment of Hon’ble Delhi High Court in the case of CIT vs. Ganeshwari Metal P Ltd. (surpa) and CIT vs Fair Finvest P. Ltd. (supra). In the first judgment the Hon’ble High Court of Delhi under identical facts and circumstances in para 9 held thus:-

The ld. counsel of assessee submitted that the assessee is a contractor and during the course of assessment proceedings the Assessing Officer noted a difference of Rs. 73,04,678/- on account of mismatch in the contact receipts as per books of accounts and as per 26AS and this Assessing Officer alleged understatement of receipts from five entities and made addition on the basis of presumptions without any cogent positive and adverse material establishing actual understatement of receipts/turnover by the assessee. He further submitted that the assessee submitted all possible documentary evidences under its commend in the form of reconciliation statements, details of RA Bill booked, copy of TDS certificate in the form of 16A reflecting the TDS deducted on the amount payable towards work done inclusive of WCT and service tax along with confirmations but the Assessing Officer as well as ld. CIT(A) dismiss the same without pointing out any defect or discrepancy therein.

The ld. counsel also submitted that before the authorities below and specially before the ld. CIT(A) the assessee submitted detailed chart reflecting the gross receipts net work flow, WCT, VAT and service tax in order to substantiate that TDS has also been deducted on WCT/VAT/Service TAX payment made by the contractee in Form No. 26AS. However, in the books the assessee has accounted for the net receipts as WCT/VAT/Service Tax is not the income of the assessee which created difference between the receipts shown by the assessee and 26AS. He further submitted that the 12

The ld. counsel thus submitted that the learned Commissioner of Income Tax (Appeals) while upholding the addition has failed to appreciate that the reconciliation between the difference between Form 26AS and the books maintained by the appellant, which were duly audited, had duly been submitted in the course of assessment proceedings & appellate proceedings and therefore, arbitrary rejection of such reconciliation is misplaced and could not be made a valid basis to sustain notional, hypothetical addition. In fact, he has also failed to appreciate that purported difference was on account of WCT/VAT/Service Tax deducted by the party which are correctly not reflected as income in the profit and loss account maintained by the appellant and therefore, this fundamental accounting methodology adopted by the appellant, accepted by the Department over the period of number of years, could not be disregarded and therefore, addition so made is not in accordance with law. The ld. counsel submitted that the coordinate bench of ITAT Delhi in the case of Jitender vs. ITO in dated 23.03.2023 held that when the remand report clearly shows that the Assessing Officer, without pointing out any defect or discrepancy in the explanation and factual position submitted by the assessee, submits and states that the reconciliation of receipts furnish by the assessee of P&L account vis a vis 26AS is in order and despite that having seen such findings of the Assessing Officer in the remand report the ld. CIT(A) not accepting the remand report favourable to the assessee proceeds to confirm addition, then such action of ld. CIT(A) makes his findings erroneous, against the facts of the case and not sustainable.

Further placing reliance on the order of ITAT Kolkata Bench in the case of ITO Kolkata vs. M/s. Star Consortium in dated 07.04.2021 the ld. counsel submitted that in para 6 the coordinate bench held that only because there was a mismatch between TDS certificate/26AS and turnover/receipts shown by the assessee in its P&L account cannot be a sole basis on which entire amount of difference between said two amounts could have been brought to tax therefore addition made by the Assessing Officer and sustained by the ld. CIT(A) may kindly be deleted particularly in view of factual remand report submitted by the Assessing Officer.

On careful consideration of rival submission from the assessment order we note that the Assessing Officer in the last para page 2 and top para at page 3 noted that the P&L account and as per Form 26AS are not same and there is difference between said two figures. The Assessing Officer show cause the assessee and assessee submitted details of difference pertaining to five entities/contractees. The Assessing Officer not agreeing with the reconciliation and detail filed by the assessee noted that the assessee has failed to explain with documentary evidence as to why impugned part of contract receipts were not included and shown in the books of accounts during the year though the same was reflected in Form no. 26AS and the Assessing Officer proceeded to make addition to the income of assessee by holding that the assessee could not reconcile contract receipts as per Form no 26AS with its books of accounts. The aggrieved the assessee carried the matter before the ld. CIT(A).

The ld. CIT(A) took on record documentary evidence and explanation of assessee and called remand report from the Assessing Officer. The Assessing Officer vide dated 24.06.2016 submitted remand report, for the sake of completeness, which is being reproduced below:-

From the remand report we clearly observe that the Assessing Officer submitted remand report after allowing due opportunity of hearing to assessee and taking on record relevant documentary evidence including explanation and reconciliation of assessee and thereafter reported to the ld. CIT(A), that detailed chart reflecting the gross receipts net worth flow, WCT and service tax, in order to substantiate that TDS has been deducted and also on WCT/VAT/Service Tax payment have been made by the contactee. The Assessing Officer also mentioned that in Form no. 26AS gross receipts are shown and in the books of accounts the assessee has accounted for only net receipt as the WCT/VAT/Service Tax are not income of assessee. The Assessing Officer also mentioned that the assessee has also furnished copies of the bills raised, confirmed copy of accounts of parties and the copies of certificate issued by the parties certifying payment of WCT. In the conclusion part, the Assessing Officer clearly mentioned that the reconciliation of receipts furnished by the assessee of P&L account vis a vis 26AS appears in order.

However, not agreeing with the remand report of Assessing Officer the ld. CIT(A) in para 5.7 noted that apparently the contractee had made payment of WCT/VAT/Service Tax to the appellant who in turn would have paid it to the tax authorities and thus in view of next para of remand report the Assessing Officer reported that the parties have issued certificates or payments of WCT and these observations are contradictory. Per contra, from vigilant and careful reading of the relevant part of the remand report (supra) we note that the Assessing Officer in the paras below the list of five parties we note that in top and second para the Assessing Officer noted that the assessee was asked to explain the discrepancy but in absence of same the Assessing Officer made addition. In the subsequent para the Assessing Officer noted that the assessee has furnished following evidence to substantiate the discrepancy as per 26AS vis a vis contact receipts. In the next para the Assessing Officer noted in bold that the TDS has been deducted and also WCT/VAT/Service Tax payment made by the contactee and in subsequent para he also noted in the bold that the copies of certificate issue by the parties for payment of WCT also filed. Thus there is no contradiction in the factual remand report of the Assessing Officer. Therefore we decline to agree with the conclusion drawn by the ld. CIT(A) as the remand report clearly shows that the assessee successfully substantiated the cause of difference between the amounts shown by him in the P&L account and receipts as per 26AS by submitting explanation supported by self speaking documentary evidence and finally reported that the reconciliation of receipts furnish by the assessee of P&L account vis a vis 26AS appears in order but the ld. CIT(A) without considering the same dismiss the stand of assessee on the basis of baseless allegation of contradictions in the remand report, and hence conclusion drawn by the ld. CIT(A) for upholding the addition is not sustainable being devoid of merits and perverse.

In view of foregoing discussion, we reach to a fortified conclusion that only because there was mismatch between TDS certificate/26AS and the turnover/receipts shown by the assessee in its P&L account cannot be a sole basis for making addition in hands of assessee to bring the difference to tax. In the present case, the assessee during remand proceedings as well as before ld. CIT(A) successfully demonstrated, by way of sustainable explanation supported by documentary evidence including reconciliation statement and certificate issued by the contractee certifying the payments of WCT etc. by them, then it has to be held that the assessee has successfully established that the mismatch was occured due to inclusion of WCT/VAT/Service Tax in the bills and factum of deduction of TDS on the total bill amount. The assessee also demonstrated that the WCT etc were paid directly by the contractees and assessee was given certificates by the contractees certifying the fact of payment of WCT etc. by them. Therefore we conclude that the ld. CIT(A) findings recorded by him are perverse

In the result, the appeal of the assessee is partly allowed.