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Case Law Details

Case Name : Kirat Hotels Pvt. Ltd. Vs ITO (ITAT Delhi)
Appeal Number : I.T.A. No. 1628/DEL/2018
Date of Judgement/Order : 22/06/2023
Related Assessment Year : 2014-15
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Kirat Hotels Pvt. Ltd. Vs ITO (ITAT Delhi)

ITAT Delhi held that addition towards unsecured loan under section 68 of the Income Tax Act sustained as assessee failed to discharge the primary onus and burden of proof of providing genuineness, creditworthiness and identity of creditors to the satisfaction of the A.O.

Facts- The case of the assessee was selected for complete scrutiny through CASS on the reason that “an unsecured loans from persons who have not filed their return of income (Form 3CD)”. The assessment order came to be passed u/s 143(3) of the Act on 28/12/2016 by making an addition on account of unsecured loan u/s 68 of the Act of Rs. 34,07,113/- on account of Sundry Creditors of Rs. 49,12,092/-, on account of N/P @ 8% of Rs. 35,26,459/- and addition on account of unsecured investment in non current investment u/s 69 of the Act to the tune of Rs. 63,00,000/-, accordingly computed income of the assessee at Rs. 1,81,45,664/-.

CIT(A) dismissed the appeal filed by the assessee. Being aggrieved, the present appeal is filed by assessee.

Conclusion- Held that the assessee has not proved the capacity, identity and creditworthiness of the lenders and also failed to provide any document to prove the genuineness of the transaction which ultimately resulted in making addition by the A.O. and confirmation of the addition by the CIT(A). Therefore, we find no reason to interference with the finding and conclusion of the Lower Authorities.

Held that the assessee did not discharge the primary onus and burden of proof as required under the provisions of Section 68 of the Act of providing genuineness, creditworthiness and identity of creditors to the satisfaction of the A.O. In the absence of any contrary material on record, we find no error or infirmity in the order of the A.O. and CIT(A) in making addition and confirming the same.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is filed by the assessee against the order dated 02/01/2108 passed by the ld. Commissioner of Income Tax (Appeals)-Ghaziabad (hereinafter referred to CIT (A), for assessment year 2014-15.

2. The grounds of Appeal are as under:-

“1. The Appellant is engaged in the Business of Running Restaurants and Bars and was having NIL Income for the A.Y 2014­15.

2. That CIT (Appeals) was wrong to dismiss the Appeal as order of A.O was illegal and contrary to the facts of the case.

3. Regarding Addition of Rs 34,07,113 / made on account of (Unverifiable Unsecured Loans, we have to submit that all Loans were taken by Account Payee cheques and Copy of ITRS, Bank statement along with confirmation from the Lenders were properly produced before Ld. A.D and also before CIT Appeals but same was not considered either by ITO or CIT Appeals. Hence this addition deserves to be deleted.

4. Regarding Addition of Rs 49,12,092 /- mode on account of (Unverifiable Sundry Creditors, we have to submit that Confirmation from Major Creditors along with copy of Account and Complete Address were produced before Ld. A.0 and also before CIT Appeals. But same was not considered either by Ld. I.T.O or CIT Appeals. So this addition deserves to be deleted.

5. CIT Appeals was wrong in upholding Addition of Rs 35,26,549/- made on account of Non-furnishing of Books of Account, Bill and Voucher. However Books of Account, copy of Ledger account of major expenses along with vouchers were furnished to Ld. A.0. But A.O has not considered the same and arbitrarily added Rs 3526459 /- as Net profit at the rate of 8% of Total Turnover which is wrong and bad in Law and should be Deleted.

6. Regarding Addition of Rs 63,00,000/- on account of (Non­current investment we are to submit that details and confirmation of Investment’s were furnished to A.0. These investments were made during the course of Business but A.O has wrongly added this amount to the Income which deserves to be deleted.

Under the facts and circumstances of the case and some other points which may be urged at the time of hearing, your honour is requested to delete Additions made and justice restore. The additions made and justice restored.”

3. Brief facts of the case are that, the assessee filed return declaring NIL income and claiming loss of Rs. 1,5,550 / – and tax was paid on deemed income u/s 155JB of the Act of Rs. 4,45,868/-. The case of the assessee was selected for complete scrutiny through CASS on the reason that “an unsecured loans from persons who have not filed their return of income (Form 3CD)”. The assessment order came to be passed u/s 143(3) of the Act on 28/12/2016 by making an addition on account of unsecured loan u/s 68 of the Act of Rs. 34,07,113/- on account of Sundry Creditors of Rs. 49,12,092/-, on account of N/P @ 8% of Rs. 35,26,459/- and addition on account of unsecured investment in non current investment u/s 69 of the Act to the tune of Rs. 63,00,000/-, accordingly computed income of the assessee at Rs. 1,81,45,664/-. As against the assessment order, the assessee preferred an appeal before the CIT(A), the Id. CIT(A) vide order dated 02/01/2018, dismissed the appeal filed by the assessee. Aggrieved by the order of the CIT(A) dated 02/01/2018, the assessee preferred the present Appeal on the grounds mentioned above.

4. None appeared for the assessee as per the order sheet the assessee not appeared even single occasion after filing the present Appeal. Several notices were sent to the registered address to the assessee which returned with an endorsement the ‘addressee not found’. Considering the above facts we deem it fit to decide the matter after hearing the Ld. Ld. Departmental Representative and verifying the material on record.

5. Ground No. 1 & 2 are general in nature, require no adjudication. The Ground No. 3 is regarding addition of Rs. 34,07,113/- made on account of unverifiable unsecured loan. As per the grounds of appeal, it is the claim of the assessee that all the loans were taken by account payee cheque and copy of the ITR, Bank statement along with confirmation from the lenders were properly produced before the A./O. and also before the CIT(A), but the same was not considered by the authorities.

6. The Ld. DR submitted that the assessee has not proved the capacity, identity and the creditworthiness of the lenders before the Lower Authorities and not provided any documents to prove the genuineness of the transaction. Therefore, the findings of the CIT(A) requires no interference and prayed for dismissal of Ground No. 3.

7. We have heard the Ld. DR and perused the material. It is found that the ld. A.O. while making the above said addition held as under:-

“During the assessment proceedings, the assessee was specifically asked to prove the identity, capacity and creditworthiness of the lenders and genuineness of statements, and complete name & address of the lenders along with confirmed copy of account of these persons. Thus, the capacity, identity and creditworthiness of the lenders and genuineness of the transaction could not be proved by the assessee. Since the above mentioned unsecured loans of Rs.34,07,113/- are unverifiable without any documentary evidences, unsecured loan of Rs.34,07,113/- is being disallowed and added to the income of the assessee u/s 68 of I. T. Act, 1961.

Since, the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(l)(c) of the Act are being initiated separately. ”

8. Even during the appellate proceedings before CIT(A) Assessee failed to substantiate the genuineness and creditworthiness of the lenders, the Ld. CIT(A) further observed that though the assessee had claimed that copies of ITR and bank statement of lenders were given by the Assessee during the appellate proceedings but no such documents have been placed before the CIT(A) as claimed by the Assessee.

9. Thus, in our opinion, the assessee has not proved the capacity, identity and creditworthiness of the lenders and also failed to provide any document to prove the genuineness of the transaction which ultimately resulted in making addition by the A.O. and confirmation of the addition by the CIT(A). Therefore, we find no reason to interference with the finding and conclusion of the Lower Authorities and find no merit in Ground No. 3 of the assessee, accordingly Ground No. 3 of the assessee is dismissed.

10. The Ground No. 4 is regarding addition of Rs. 4,91,22,092/- made on account of unverifiable Sundry Creditors. The assessee pleaded in the grounds of appeal that ‘confirmation from Major Creditors along with copy of Account and Complete Address were produced before Ld. A.O. and also before CIT Appeals. But same was not considered either by Ld. I.T.O. or CIT Appeals. So this addition deserves to be deleted. The Ld. DR relying on the order of the CIT(A) submitted that the assessee had filed confirmation of the account fo Sundry Creditors only to the extent of Rs. 48,36,315/- but the assessee has failed to furnish confirmation and other documents of balance Sundry Creditors even after availing several opportunities. Therefore, the addition of Rs.49,12,092/- deserves to be sustained’.

11. We have heard the Ld. DR on Ground No. 4 and perused the material. It is found that the ld. A.O. while upholding the above said addition held as under:-

“ Further, on perusal of balance sheet of the assessee, it is notice that the assessee has shown sundry creditors/Trade payable for raw materials of Rs.97,36,316/-. During the assessment proceedings, the assessee was required to prove the identity, creditworthiness and genuineness of these transactions. The assessee was required to furnish the complete name and address of the sundry creditors alongwith copy of ITRS and confirmed copy of account of these persons. In response to this the assessee has filed list of sundry creditors without complete address. During the year, the assessee has shown total turnover/sales of Rs.4,40,80,735/-, sundry creditors of Rs.97,36,316/-, and cash in hand shown by the assessee is of Rs. 73,68,573/. Looking to the nature of business of the assessee, the sundry creditors shown of Rs. 97,36,136/- is on a very higher side and huge cash in hand was also shown by the assessee. On 27.12.2016, the A.R of the assessee has filed confirmed copy of accounts of the sundry creditors of Rs. 48,36,315/- only. The assessee has failed to furnish the confirmations and other documents of the balance sundry creditors. As the limitation of the case is on 31.12.2016 and the assessee has not filed documents and evidences regarding balance creditors to prove the identity, creditworthiness and genuineness of the creditors, despite ample opportunities provided to it, therefore, sundry creditors of Rs.49,12,092/-(9736136-4836315) is hereby disallowed and added to the income of the assessee. Since, the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(l)(c) of the Act are being initiated separately.

12. During the Appellate proceedings before the CIT(A), the assessee produced copies of confirmations, ledger account but without the PAN and other details of assessment particulars and some of the confirmations did not bear the address of the creditors, therefore, the Ld. CIT(A) is of the opinion that the assessee did not discharge the primary onus and burden of proof as required under the provisions of Section 68 of the Act of providing genuineness, creditworthiness and identity of creditors to the satisfaction of the A.O. In the absence of any contrary material on record, we find no error or infirmity in the order of the A.O. and CIT(A) in making addition and confirming the same. Thus, we find no merit in the Ground No. 4 of the Assessee. Accordingly, Ground No. 4 is dismissed.

13. The Ground No. 5 is regarding addition of Rs.35,26,549/- made on account of non furnishing of books of account, Bill and Voucher. It is the specific plea of the assessee in the grounds of appeal that the Books of Account, copy of Ledger account of major expenses along with vouchers were furnished to Ld. A.O., but A.O. has not considered the same and arbitrarily added Rs. 35, 26,459/- as Net profit at the rate of 8% of total turnover which is wrong and bad in law and should be deleted. The Ld. DR submitted that the assessee neither produced the copy of ledger account of major expenses along with the voucher either before the A.O. or before the CIT(A) and not produced the books of account as required u/s 145 of the Act therefore, the addition made by the A.O. which was upheld by the CIT(A) which requires no interference by this Tribunal.

14. We have heard the Ld. DR perused the material. During the assessment proceedings while making the estimation of the profit of Rs. 35,26,459/- the A.O. observed as under:-

“6. On perusal of audited profit & loss account it is noticed that the assessee has shown other expenses of Rs.1,74,82,637/- under various heads. Vide show cause notice dated 11.11.2016 the assessee was specifically asked to produce books of accounts bills and-vouchers. But the assessee has-neither appeared nor furnished any books of accounts, bills and vouchers. Keeping in view the facts elaborated above that assessee has totally failed to produce books of accounts before me for verification despite various opportunities given to the assessee as discussed above, it is concluded that either no books of accounts are maintained by the assessee-or-the book results are not reliable. Considering, the facts of the case and keeping in view the fact that the assessee has failed to produce books of accounts and bills and vouchers for verification before the undersigned, the book result of profit as declared by the assessee is being treated as non-reliable. Hence, in accordance to the power vested by section 145(3) of the Income-tax Act, 1961, the so called books of accounts as well as book results are being rejected, the same being totally unreliable.

6.1. Looking to the facts of this case, the net profit of the assessee is estimated at 8% of the total turnover of Rs. 4,40,80,735/- as declared by the assessee in the return of income, which comes to Rs.35,26,459/-. During the year under consideration, the assessee made total sales/gross turnover/ gross receipt of Rs. 4,40,80,735/-and declared net profit of (-)Rs. 1,359/-. Therefore, net profit of Rs 35,26,459/- which is hereby calculated at the rate of 8% is being added back to the income returned by the assessee. Since, the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(l)(c) of the Act are being initiated separately. ”

15. The above said addition has been made by the A.O. due to estimation of profit as the assessee did not produce the books of accounts being maintained by the Assessee. As per the finding of the CIT (A), even during the course of appellate proceedings, though the assessee contended that it had produced copy of the ledger account of major expenses along with vouchers before the A.O., on examination of the fact by the CIT (A) found that ‘assessee did not produce books of accounts or audit report even during appellate proceedings. Copies of certain ledger accounts cannot be treated as books of accounts and since appellant has not been able to produce books of account as required u/ s 145 of the Act.’. In the absence of any contrary material on record, we find no error or infirmity in the order of the A.O. and the findings of the CIT(A) in confirming the same. Thus, we find no merit in the Ground No. 5 of the Assessee. Accordingly, Ground No. 5 of the Assessee is dismissed.

16.The Ground No. 6 is regarding addition of Rs.63,00,000/- on account of non current investment. The assessee contended that in the said ground of appeal that the details and confirmation of investments were furnished to A.O., these investments were made during the course of Business but A.O. has wrongly added this amount to the Income which deserves to be deleted. The Ld. DR submitted that the Assessee either during assessment proceedings or during appellate proceedings could substantiate the source of investment by producing books of account or copy of the bank account, therefore, the addition made by the A.O. which was confirmed by the CIT(A) u/s 115BBE requires no interference at the hands of the Tribunal.

17. We have heard the Ld. DR and perused the material. The DR while making the said addition observed as under:-

Further, on perusal of Audited balance sheet as on 31.03.2014, it is noticed that the assessee has shown non-current investment of Rs. 1,43,00,000/- and the non current investment shown as on 31.03.2013 was Rs.80,00,000/-. During the year the assessee has made addition of Rs. 63,00,000/- on account non-current investment in two parties in which Rs. 10,00,000/ – made to capital as partner in M/s Maha Matangeshwar Mineral and Rs.53,00,000/- in unquoted fully paid-up shares. Vide order sheet entry dated 22.11.2016, the assessee was required to furnish the source of non current investment shown at Rs. 1,43,00,0000/-. In response to this the assessee has filed written submission on 27.12.2016 and filed copy of account of M/s Maha Matangeshwar Mineral along with partnership deed executed on 09.03.2013. But the source of payment to M/s Maha Matangeshwar Mineral of Rs. 10,00,000/- has not been filed by the assessee..

7.1. Further, the assessee has made non-current investment in unquoted fully paid up shares of Hymn Hospitality Services Pvt. Ltd. of Rs.53,00,000/-. But the details and source of payment made to M/s Hymn Hospitality Services Pvt. Ltd. of Rs.53,00,000/- have not been furnished by the assessee. The assessee has also not furnished complete name and address of the parties and the source of non-current -investment-made during the year of Rs. 63,00,000/- , by it. As the limitation of the case is on 31.12.2016 and the assessee has failed to furnishthe source ofinvestment of Rs.63,00,000/- during the year, the non current investment of Rs.63,00,000/- (1,40,00,000 80,00,000) is being disallowed as unexplained investment and added to the income of the assessee u/s 69 of I.T. Act, 1961. Therefore, non-currentinvestment of Rs.63,00,000/- is being added to the income of the assesseeas unexplained investment in non­current investment u/s 69 of l.T. Act, 1961 Since, the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(l)(c) of the Act are being initiated separately.

18. The above said addition has been confirmed by the CIT(A). As per the grounds of appeal, it is the case of the assessee that ‘the details and confirmation of investment have been produced before theA.O. butwhich was not considered by the A.O. a sum of Rs. 10,00,000/- has been claim to be invested in M/s Mahatangeshwar Mineral and capital of Rs. 53,00,000/- claim to have been invested in M/s Hym Hospitality Services Pvt. Ltd’. But to substantiate the said claim, the assessee has not produced the source of investment by placing the books of accounts or copy of the account either before the A.O. or before the CIT(A). Therefore, we find no error or infirmity in the order of the CIT(A) in confirming the addition made by the A.O. u/s 69 read with 115BBE of the Act and find no merit in Ground No. 6 of the Assessee accordingly, Ground No. 6 of the assessee is dismissed.

19. In the result, Appeal of the assessee is dismissed.

Order pronounced in the open court on : 20/06/2023.

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