Addition of mere book entry unsustainable

Rajesh Kumar Gupta Vs ACIT (ITAT Chandigarh)

ITAT Chandigarh held that addition of mere book entry unsustainable as no amount has been received and no adverse interference with regard to the same has been drawn by the department.

Facts- Assessee alleges that CIT(A) has erred in confirming action of AO by assessing income at Rs. 1,24,53,530/- against the declare total loss of Rs. 54,02,028/-.

Conclusion- After considering the facts and circumstances of the case and going through the evidences furnished, we do not find any justification on the part of the lower authorities for disallowing the business loss to the tune of Rs. 10,34,134/- to the assessee.

Further, the assessee has filed confirmed copy of accounts to show that it was merely a book entry. The assessee has also filed his bank statement, wherein, no such amount has been received and no adverse inference with regard to the same has been drawn by the Department. Thus, the addition made with regard to the same also deserves to be deleted.

Held that the Income Tax Authorities should charge legitimate taxes from the assessee. An assessee should not be punished for his/ her bonafide mistake. The Instructions in this respect have also been issued by the CBDT from time to time that the Income Tax Authorities should assist the assessee in correctly making their claim in the return.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

The present appeal has been preferred by the assessee against the order dated 16.07.2019 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2. The assessee in this appeal has taken the following grounds of appeal:-

1. That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer by assessing the income at Rs. 1,24,53,530/- against the declared total loss of Rs. 54,02,028/-.

2. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in disallowing the loss claimed by the assessee to the tune of Rs. 10,34,164/- as per Profit and Loss Account.

3. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in sustaining the addition of Rs. 64,47,530/- u/s 68 of the Income Tax Act, 1961 on account of amount credited in capital account of the appellant.

4. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 59,89,500/- on account of unsecured loans received from Sh. Harish Gupta and Dyal Sarup (HUF) u/s 68 of the Income Tax Act.

5. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 38,00,196/- on account of long term capital gain and disallowing the long term capital loss as claimed by the assessee to the tune of Rs. 46,24,364/-

6. That the Ld. CIT(A) has ignored the documentary evidences and submissions as made by the assessee during the remand proceedings and submission as already made before him.

7. That the Ld. CIT(A)/Assessing Officer ought to have allowed the assessed brought forward losses of Asstt. Year 2012-13 & 2013-14 to the tune of Rs. 78,354/- and Rs. 45,66,708/-respectively, to be set off against current year’s income.

3. Ground No. 1 : Ground No.1 is general in nature and does not need any specific adjudication.

4. Ground No.2: Vide ground No.2 the assessee has contested the action of the CIT(A) in confirming the disallowance of business loss claimed by the assessee at Rs. 10,34,164/-. The brief facts relating to the issue are the assessee in its profit and loss account claimed business loss of Rs. 10,34,164/-. However, the Assessing officer disallowed the said business loss on the ground of non-production of relevant supporting documents.

During the appellate proceedings before the Ld. CIT(A), the assessee furnished certain additional evidences in support of its claim. The Ld. CIT(A) sent those evidences to the Assessing officer for verification and remand report thereof. In response, the Assessing officer submitted his remand report dated 18.1.2019, wherein, he recommended to the CIT(A) not to admit the additional evidences as the same were not furnished by the assessee during the assessment proceedings. The Ld. CIT(A) accordingly refused to consider the evidences submitted by the assessee in support of the above claim. The Ld. CIT(A) uphold the disallowance so made by the Assessing officer.

5. Before us, the Ld. Counsel for the assessee has relied on the copies of the various documents placed on file, wherein, the details of various expenses have been mentioned along with copy of the ledger account etc. The Ld. Counsel has further submitted that the assessee’s concern, had been declared as non-performing assets (NPA) and bank had taken control over its properties. He has further submitted that due to the aforesaid reasons, the assessee could not furnish the relevant evidences before the Assessing officer. He has further submitted that the relevant evidences were furnished before the Ld. CIT(A) whereupon, the remand report was also called upon but, the Ld. CIT(A) failed to take note of the aforesaid evidences. The Ld. Counsel has further submitted that since the business of the assessee has been closed down and the expenses claimed by the assessee are petty expenses in the shape of salary and day to day expenses, therefore, the issue may be decided after considering the evidences placed on file.

6. The Ld. DR, on the other hand, has relied on the findings of the lower authorities.

7. We find that the expenditure claimed by the assessee are petty expenses, out of which, the major expenses are in respect of salary to staff of Rs. 1,65,500/-. Once the assessee has furnished the relevant documents before the Ld. CIT(A) and after admitting the same, the Ld. CIT(A) has called for remand report from the Assessing officer, therefore, the Ld. CIT(A), in our view, ought to have looked into these documents.

After considering the facts and circumstances of the case and going through the evidences furnished, we do not find any justification on the part of the lower authorities for disallowing the business loss to the tune of Rs. 10,34,134/- to the assessee. The disallowance made by the Assessing officer in this respect is, therefore, ordered to be deleted.

8. Ground No.3: Vide ground No.3, the assessee has challenged the action of the CIT(A) in confirming the addition of Rs. 64,47,530/- u/s 68 of the Income Tax Act on account of amount credited in the capital account of the assessee.

9. The brief facts relating to the issue are that the Assessing officer at the time of assessment proceedings, noticed that the assessee has made addition of Rs. 64,47,530/- to its capital account. The assessee in this respect has explained that the aforesaid addition in its capital was from two sources; the first amount of Rs. 47,50,000/- was received from sale of land and that the rest of the amount was from the withdrawal from capital of the assessee in Akshit Enterprises and some of the amount was withdrwan from his bank account maintained with the Yes Bank. The assessee furnished the relevant evidences in this respect also, whereupon, the Ld. CIT(A) called for remand report from the Assessing officer. The Ld. CIT(A) noted that the assessee had not furnished the aforesaid evidence at the time of assessment proceedings. Further, the assessee had not furnished the bank account statement in which the sale proceeds from the sale of land were credited. He, however, has noted that the assessee has submitted copy of the account of assessee in the books of account of the Akshit Enterprises, copy of the bank accounts of Yes Bank Ltd and Kotak Mahindra Bank. The assessee has also furnished the copy of the sale deed with the regard to the property. The Ld. CIT(A) further noted that the assessee had not produced any books of account from various persons / parties from whom the said amount of Rs. 16,97,530/- was stated to have been received. He, therefore, confirmed the additions so made by the AO.

10. Before us, the Ld. counsel for the assessee has submitted that the assessee had filed copy of the registered sale deed vide which property was sold for Rs. 95 lacs out of which the assessee received Rs. 47,50,000/- in capital account. The assessee had filed the copy of the bank statement of the buyer of the land, narration of which showed that the payment was directly made in the loan account of the assessee which was actually became a NPA loan. The copy of the PAN and the ITR of the buyer was also filed. The payment was made directly to the loan account of the assessee by way of Demand Draft. Regarding the addition of Rs. 16,97,530/-, the Ld. counsel has submitted that no information was sought by the Assessing officer from the assessee regarding source of Rs. 16,97,530/-. It has been submitted that all the deposits had been made from the bank account of the assessee. However, the Ld. CIT(A) has not considered the relevant transactions that every credit entry have been backed by the saving bank account of the assessee.

11. After hearing the Ld. representatives of the parties, we find that the assessee has successfully proved the sale transaction of the land for Rs. 95 lacs out of which, the assessee received Rs. 47,50,000/-which were directly deposited interest eh firm’s loan account. .Therefore, the addition made into the capital account of the said amount cannot be doubted. Relating to the rest of the amount, the Ld. Counsel for the assessee has submitted that some of the amount was withdrawn from its firm M/s Akshit Enterprises and some of the amount was received from withdrawals of its Yes bank account. The copy of the bank account statement were furnished before the Ld. CIT(A), however, the Ld. CIT(A) failed to look into the aforesaid bank statement etc.

In view of this, we do not find justification on the part of the CIT(A) in sustaining the aforesaid additions, the same is accordingly ordered to be deleted.

12. Ground No. 4: Vide ground No.4, the assessee has agitated the action of the Ld. CIT(A) in confirming the addition of Rs. 59,89,500/- on account of unsecured loans received from Shri Harish Gupta and Dyal Sarup (HUF) u/s 68 of the Income Tax Act. So far as the loan of Rs. 47,50,000/- received by the assessee from brother Shri Harish Gupta is concentred, the assessee has duly proved the sale of the property of Rs. 90 lacs out of which 50% share of Rs. 47,50,000/- has been claimed to have been taken by the assessee from his brother namely Shri Harish Gupta, which has been directly deposited by the buyer into the NPA Loan account of the firm M/s Ronald Exports and the said amount was credited as unsecured loan. The bank statement and copy of the demand draft was also filed before the Ld. CIT(A) as evidence to the payment made to the bank account of the Roland Exports. Regarding the amount of Rs. 12,39,500/-, which the assessee has added as loan taken form Dyal Sarup (HUF), the Ld. counsel for the assessee has submitted that the assessee had duly furnished the copy of the account of Shri Dyal Sarup (HUF) in his books of account. That from the perusal of the confirmed copy of the accounts, it was clear that one cheque amounting to Rs. 12,39,500 taken from Dyal Sarup (HUF) was wrongly issued / repaid to Dyal Sarup Instead of Dyal Sarup (HUF) and thus, it was paid back to the assessee subsequently. Thus, the same needs to be accepted. Regarding the balance amount of Rs. 6,19,750/-it is submitted that the said amount was not actually received from Dyal Sarup (HUF) but was merely a book entry made from M/s Dhruv Impex and the same has been submitted before the Ld. AO during the remand proceedings and reproduced in the order in Para 7.3 at Page-12. The assessee has also filed the copy of account of Dyal Sarup in the books of Dhruv Impex (Enclosed in the paper book at page-79). The Worthy CIT(A) have not even cared to look into the said facts and in a presumptive manner rejected the submissions of the assessee and upheld the additions. Thus, the assessee has filed confirmed copy of accounts to show that it was merely a book entry. The assessee has also filed his bank statement, wherein, no such amount has been received and no adverse inference with regard to the same has been drawn by the Department. Thus, the addition made with regard to the same also deserves to be deleted.

In view of this, the addition made by the Assessing officer relating to the unsecured loans is ordered to the deleted.

13. Ground No. 5: Vide ground No.5, the assessee has agitated the action of the Assessing officer in making the addition of Rs. 38,00,196/- on account of Long Term Capital Gains and thereby reducing the Long Term Capital Loss claimed by the assessee. During the assessment proceedings, the Assessing officer observed that the assessee and his brother had purchased a commercial property at the cost of Rs. 90 lacs on 31.7.2006 whose circle rate was Rs. 11,000/- per square yard. However, the assessee and his brother sold the aforesaid property showing the same as ‘residential property’ on 18.2.2014 for a consideration of Rs. 95 lacs. The Assessing officer observed that the assessee could not explain as to how the status of the property as ‘commercial property’ changed to that of ‘residential property’. He, accordingly, applied circle rate of commercial property and recomputed the capital gain at Rs. 73,17,450/- and allowed the Long Term Capital Loss of Rs. 38,00,196/-. The Ld. CIT(A) confirmed the addition so made by the Assessing officer.

14. We have heard the rival contentions and gone through the material available on record. In this case, the assessee initially had purchased the property as commercial property for Rs. 90 lacs. However, while selling the property the assessee sold the property as residential property. The Stamp Duty Authority has accepted the said property as residential property. Apart from this, the assessee produced on file the Certificate issued by the Assistant Town Planner supporting that the property sold by the assessee falls within the Ludhiana Residential Town Planning Scheme and hence residential property.

15. As per the provisions of Section 50C of the Income Tax Act, in case the value of the property transferred is shown less than the value assessed by the Stamp Duty Authority / State Govt. Authority, the Assessing officer can apply the value of assessed / assessable by the Stamp Duty Authority / State Govt. Authority. As per the provisions of section 55A of the Act, the Assessing officer, to ascertain the true value and the Stamp Duty Authority, can refer the matter to the Stamp Valuation Officer. In this case, the assessee has claimed to have sold the property as per the Value assessed by the Stamp Valuation Authority. Apart from that, the assessee has also furnished a Certificate from the concerned authority i.e. Assistant Town Planner that the property in question falls in the residential area. However, it has not been explained as to why the assessee had purchased the said property as commercial property. May it be so, the Assessing officer at most, can have referred the matter to the District Valuation Officer but the Assessing officer himself did not have any authority to apply the value of the Circle rate of commercial property, especially when the Stamp Duty Authority / Registering Authority had accepted this sale deed as per the Circle rate meant for residential property. Since the value shown by the assessee has been accepted by the Stamp Duty Authority and further the Assessing officer has not referred the matter to the DVO to get the market value of the property, therefore, we do not find any justification on the part of the Assessing officer to himself made the additions by applying circle rate meant for commercial property. In view of this, the addition made by the Assessing officer relating to this amount is ordered to be deleted.

16. Ground No. 6: Ground No. 6 raised by the assessee is general in nature, hence, does not require any specific adjudication.

17. Ground No. 7 : Vide ground No. 7, the assessee is aggrieved by the action of the CIT(A) in not allowing the assessee the brought forward loss of AY 2012-13 and AY 2013-14 to the tune of Rs. 78,354/- and Rs. 45,66,708/-respectively. The Ld. Counsel for the assessee has submitted that the aforesaid brought forward losses of AY 2012-13 and AY 2013-14 inadvertently could not be claimed in the relevant column of the return. However, during the course of assessment proceedings, the same were very much claimed. Further, that the claim was also made before the Ld. CIT(A) but the lower authority failed to look into the aforesaid claim of the assessee.

18. We have considered the rival contentions. It has been time and again held that the Income Tax Authorities should charge legitimate taxes from the assessee. An assessee should not be punished for his/ her bonafide mistake. The Instructions in this respect have also been issued by the CBDT from time to time that the Income Tax Authorities should assist the assessee in correctly making their claim in the return.

19. In view of this, we direct the Assessing officer to verify the claim of the assessee regarding the brought forward losses of the previous years i.e. AYs 2012-13 and 2013-14 and if the claim of the assessee is found correct, then to give set off adjustments of the same in the current year under considerations

20. In view of the observations made above, the appeal of the assessee is treated as allowed for statistical purposes.

Chandigarh, the 30^th December,, 2022.