Smt. Leela Kothari Vs ITO (ITAT Jaipur)
The issue under consideration is whether the CIT(A) is correct in making an addition u/s 68 regarding loan received by assessee considering it as non genuine?
In the currect case, the assessee is an Individual and proprietor of M/s. Leela Kothari. During the course of scrutiny assessment proceedings, the AO noted that the assessee has raised loans from various persons. In order to examine the conditions as provided under section 68, the AO issued notices under section 133(6) to 13 loan creditors. After receiving the response as well as confirmations and other documents including the bank statements of the loan creditors, the AO noted that out of 13 loan creditors, cash has been deposited prior to the issuing cheques to the assessee in case of 9 loan creditors. Thus the AO proceeded to examine the claim of loan and particularly the creditworthiness and genuineness of the transactions in respect of 9 loan creditors. After conducting the enquiry as well as recording the statements under section 131 of the IT Act, the AO held that various persons have given contradictory statements and, therefore, assessee failed to establish the creditworthiness of the loan creditors. Accordingly, the AO made an addition under section 68 of the Act.
ITAT states that, once the source of deposit is explained as prior withdrawal from the bank of more than the amount deposited subsequently then the creditworthiness of the creditor and genuineness of the transaction cannot be doubted. All the creditors were assessed to income tax and they provided their confirmations, PAN, affidavits and all the relevant documentary evidence in support of the claim that the loans were given from the funds available with them through banking channel. The deposits of the cash in the bank accounts is certainly a relevant aspect and strong reason to conduct an enquiry and to verify the transaction but the deposit itself cannot be a ground to hold that the transaction is not genuine and the loan creditors were not having the capacity to grant the loan. Accordingly, when the assessee has produced all the documentary evidence to dispel the doubts of the AO, then the transaction cannot be held as non-genuine without bringing any material or fact to show that the assessee’s own unaccounted money has routed through the bank accounts of the loan creditors.
In view of the above facts and circumstances as well as the documentary evidence produced by the assessee, the addition made by the AO is not justified and the same is deleted.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order dated 05.09.2018 of ld. CIT (Appeals) for the assessment year 2015-16. The assessee has raised the following grounds of appeal :-
“ 1. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 59,50,000/- u/s 68 in respect of the loan received from 9 persons by holding that assessee has not proved the creditworthiness of these persons even when all the persons are regularly assessed to tax and most of them have confirmed the amount advanced by them to the assessee in the statement recorded u/s 131 of the Act by the AO.
2. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 14,25,000/- u/s 68 by treating the amount introduced by the asessee in her capital account as unexplained. He has also erred in not allowing the set off of the addition of Rs. 63,380/- made u/s 43CA against the addition confirmed by him.
3. The assessee craves to amend, alter and modify any of the grounds of appeal.
4. The appropriate cost be awarded to the assessee.”
Ground No. 1 is regarding addition made by the AO under section 68 of the IT Act on account of loan received from 9 persons.
2. The assessee is an Individual and proprietor of M/s. Leela Kothari. The assessee filed her return of income on 12th September, 2015 declaring total income of Rs. 7,36,940/-. During the course of scrutiny assessment proceedings, the AO noted that the assessee has raised loans from various persons. In order to examine the conditions as provided under section 68, the AO issued notices under section 133(6) to 13 loan creditors. After receiving the response as well as confirmations and other documents including the bank statements of the loan creditors, the AO noted that out of 13 loan creditors, cash has been deposited prior to the issuing cheques to the assessee in case of 9 loan creditors. Thus the AO proceeded to examine the claim of loan and particularly the creditworthiness and genuineness of the transactions in respect of 9 loan creditors. The AO recorded the statements of all the 9 creditors and also called the relevant documents from the banks of the creditors in respect of the deposit slips, withdrawals made by these loan creditors from their respective bank account. After conducting the enquiry as well as recording the statements under section 131 of the IT Act, the AO held that various persons have given contradictory statements and, therefore, assessee failed to establish the creditworthiness of the loan creditors. Accordingly, the AO made an addition under section 68 of the Act of Rs. 59,50,000/- in respect of the loans received from 9 persons by holding that the assessee has not proved the creditworthiness of these persons. The assessee challenged the action of the AO before the ld. CIT (A) and contended that the assessee produced all the relevant documentary evidence including the income tax records of the loan creditors who have been assessed to tax. Further, all the loan creditors have confirmed the transaction of loan given to the assessee through their bank and also explained the source of the fund from which the loans were given to the assessee. The ld. CIT (A) called for a remand report from the AO and after the remand report received from the AO, confirmed the addition made by the AO on this account.
3. Before us, the ld. A/R of the assessee has submitted that the only ground for rejecting the ground by the AO and making the addition under section 68 is that there was cash deposits in the bank accounts of the loan creditors prior to the loans given to the assessee and further the cash deposit slips show that the deposits were made in case of 6 creditors by one person and in case of 2 other creditors by another person, namely, Shri Manish Chouhan and Shri Arvind Ajmera respectively. The ld. A/R has referred to the documents which were received by the AO from the respective banks showing the deposits in the bank accounts and in the deposit slips the depositor’s name is mentioned as Manish Chouhan. However, the fact is that Shri Manish Chouhan is the family member of these 6 loan creditors and handling the financial matters of all the family members, therefore, it is not unusual when one family member has done these transactions of deposit and withdrawal from the banks of the family members. Thus the ld. A/R has submitted that when there is a close relationship between Shri Manish Chouhan and other 6 loan creditors, then suspecting the transactions of deposit and withdrawal by one person is not justified. He has further contended that all the loan creditors have confirmed this fact including Shri Manish Chouhan that he was doing all the financial transactions on behalf of the family members. The AO also examined Shri Arvind Ajmera who has also explained that all the transactions in his bank account are done by Shri Narendra Surana, accountant of Shri Renu Jain and, therefore, he was not able to explain all the details of the deposits and withdrawals made from their accounts. The ld. A/R has further submitted that the assessee has also produced the record to show that earlier these loan creditors made investments in M/s. Gandhar Rocktech and M/s. Hemant Sales Corporation and after receiving back the amount from those concerns, they withdrawn the amount from their bank account and the said amount was again deposited in the bank account before giving the loan to the assessee. There is a direct co-relation between the funds withdrawn from the bank account which came in the bank account as money received back from these two concerns i.e. M/s. Gandhar Rocktech and M/s. Hemant Sales Corporation. Thus the amounts deposited in the bank accounts of these loan creditors were actually the amounts withdrawn by them from their bank accounts and, therefore, the source of deposit made in the bank was duly explained through documentary evidence. Hence the assessee has discharged her onus to prove the identity of the creditor, creditworthiness of the creditor and genuineness of the transactions as required under section 68 of the IT Act. The ld. A/R has thus submitted that the AO made all additions in respect of 9 creditors of which 6 creditors belonged to Chouhan family, 2 creditors, namely, Arvind Ajmera and Akshya Ajmera are neighbours of Chouhan family and Ms Neha Jain is the daughter of the assessee. He has referred to the ledger account of M/s. Gandhar Rocktech in the books of Smt. Shashi Chauhan, Smt. Priyanka Chauhan, Shri Inder Singh Chauhan, Inder Singh Chauhan HUF, Smt. Rekha Chauhan, Shri Sunil Chauhan, Shri Arvind Ajmera and Shri Akshya Ajmera and submitted that all these 8 loan creditors have received the respective amounts from M/s. Gandhar Rocktech in the month of July, 2014 and thereafter they have withdrawn the cash from their accounts, therefore, the source of the deposits made in their bank accounts subsequently is established from the record itself and bank accounts of these loan creditors. The ld. A/R has also referred to the statements recorded by the AO of loan creditors as well as Shri Manish Chauhan and submitted that they have explained the circumstances as to how and why Shri Manish Chauhan has completed the formalities of depositing the cash in the bank accounts and also withdrawing the amounts from their bank accounts as he was handling the financial transactions who are all family members. All the loan creditors have given the affidavits, confirmations, bank statements, ledger accounts of M/s. Gandhar Rocktech, returns of income for the assessment years 2012-13 and 15-16. Therefore, the assessee has produced all the supporting documentary evidence to establish the identity and creditworthiness of the loan creditors as well as the genuineness of the transactions. He has referred to the details of bank accounts and submitted that there were prior withdrawals by these loan creditors in the month of July, 2014 of amount which are more than subsequent cash deposits in their bank accounts. Therefore, there was no reason to doubt the creditworthiness and genuineness of the transactions when there was withdrawal of more than the amount subsequently deposited in the bank accounts of these loan creditors. Further, all these loan creditors were examined by the AO and they have explained the facts regarding the transactions of withdrawals from the bank account and again deposited the cash in the bank account and thereafter given loan to the assessee. Merely because one of the family members of the loan creditors have done the transactions of deposits and withdrawals will not render the transactions as bogus particularly when this fact was explained that Shri Manish Chauhan, a family member was looking after the financial transactions of all the family members of the loan creditors and, therefore, nothing abnormal in this practice of withdrawing the amount from the bank accounts of his family members and thereafter depositing back the amount on behalf of the family members. Similarly, Shri Arvind Ajmera is neighbor and friend of Shri Manish Chauhan, therefore, in some of the cases he has signed the deposit slips for deposits made in the bank accounts of these loan creditors. The ld. A/R has, thus submitted that the loan which was earlier advanced by these loan creditors to M/s. Gandhar Rocktech was received back and subsequently was given to the assessee. All these transactions are reflected in the bank account as well as ledger account produced by the assessee. All the loan creditors are regularly filing their income tax returns and assessed to tax. He has further explained that M/s. Gandhar Rocktech is a proprietorship concern of one Shri Renu Jain. Therefore, the transactions carried out by his accountant are normal transactions and merely because Shri Renu Jain is nephew of the assessee has no relevance and cannot be a reason for doubting the transaction and making the addition. As regards the loan taken from Ms Neha Jain, the daughter of the assessee, the ld. A/R has submitted that she is living in Dubai and a regular income tax assessee having income from Interest from bank deposits, advances and tuition fees. He has referred to the return of income filed by Ms Neha Jain and submitted that she has declared total income of Rs. 3,67,860/-. She was also having salary income from the assessment years 2007-08 to 2014-15 apart from the opening cash balance of Rs. 7,61,376/-, out of which she deposited Rs. 5 lacs in her bank account. Therefore, the amount advanced to the assessee by her daughter is duly reflected from the record including bank account. The source of cash deposit of Rs. 5 lacs was also explained through documentary evidence. The ld. A/R has further submitted that Ms Neha Jain had already advanced a sum of Rs. 13,81,392/- to the assessee as on 01.04.2014. He has referred to the cash book and bank ledger as well as ledger account of the assessee to show that all these transactions are part of the books of account. She has also filed affidavit and confirmed the advance given to the assessee. Therefore, the assessee has discharged her onus in respect of all the 9 loan creditors. In support of his contention, the ld. A/R has relied upon the following decisions :-
CIT vs. Jai Kumar Bakliwal 224 Taxman 87 (Raj. HC)(Magz.)
CIT vs. H.S. Builders (P) Ltd. 78 DTR 169 (Raj. HC)
CIT vs. Deen Dayal Choudhary 148 DTR 275 (Raj. HC)
4. On the other hand, the ld. D/R has submitted that the AO has conducted a thorough enquiry during the assessment proceedings as well as during the remand proceedings and has established that the assessee has failed to establish the creditworthiness of the loan creditors and since there was a prior cash deposit of equal amount in the bank accounts of all the 9 loan creditors, therefore, the genuineness of the transaction is very much doubted and not proved by the assessee. She has relied upon the orders of the authorities below and submitted that in the statements recorded by the AO under section 131 of the IT Act, the loan creditors have given contradictory statements and were not able to ever explain the transactions of withdrawals and deposits made in their bank accounts. Therefore, the genuineness of the transaction was not proved by the assessee.
5. We have considered the rival submissions as well as the relevant material on record. In order to verify the claim of loans taken by the assessee, the AO issued summons under section 133(6) to 13 persons as recorded in para 3.2 of the assessment order as under :-
“ 1. Sh. Hemant Kothari
2. Ms Sarita Parakh
3. Sh. Arvind Ajmera
4. Sh. Akshay Ajmera
5. Smt. Rekha Chouhan
6. M/s. Sunfield realators
7. M/s. Inder Singh Chouhan HUF
8. Sh. Inder Singh Chouhan
9. Smt. Neha Jain
10. Smt. Priyanka Chouhan
11. Sh. Sunil Chouhan
12. Smt. Shashi Chouhan
13. Sh. Chandra Kumar Vinayak.”
After receiving the information and perusal of the bank statements of these loan creditors, the AO noted that in some of the bank accounts of the creditors an equal amount in cash were deposited before issuing of cheques to the assessee. Thus the AO doubted the genuineness of the transaction and creditworthiness of the cash creditors in whose bank account cash was deposited prior to the loan given to the assessee. The AO has given the details of 9 loan creditors where the cash was deposited prior to the loans given to the assessee as under :-
