Case Law Details
Chandaka Chinnam Naidu Vs ITO (ITAT Visakhapatnam)
Held that addition of the amount of unsecured loan sustained as the assessee failed to establish the genuineness of the loan transactions except filing the affidavits.
Facts-
Assessing Officer(AO) observed that the assessee has shown unsecured loans of Rs.25,00,000/-, but failed to furnish any documentary evidences in support of identity, credit worthiness and genuineness of the transaction. The claim of unsecured loans by the assessee stood unproved and hence, the AO added the same to the income of assessee, treating the same as income from other sources.
Further, with regard to unexplained capital of Rs. 7,97,500/- AO observed that in the absence of any documentary evidence, it can only be construed that the amount for introduction of fresh capital was met out from unexplained sources made addition under the head ‘income from other sources’.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before the Tribunal.
Conclusion-
CIT(A) held that persons with lower income, advancing such a huge amount in a single day is improbable. The main contention of the assessee is that there is nothing wrong in receiving the amount of Rs.25,00,000/- in a single day and they all are agriculturists and they have accumulated profits from their agricultural holdings. But there is no satisfactory evidence about the credit worthiness of the creditors. We are of the view that the assessee failed to establish about the genuineness of the loan transactions except filing the affidavits. Even before us also the assessee has not filed any satisfactory evidence about the loan transactions. Therefore, we do not find any infirmity in the orders passed by the lower authorities and the ground raised by the assessee is dismissed.
The assessee was not able to produce any source for the capital contribution with any kind of evidence. Therefore, the AO made the addition to the tune of Rs.7,97,500/-. The Ld.CIT(A) upheld the addition made by the AO. Admittedly, the assessee has not placed any evidence regarding this amount even before the Tribunal to substantiate his claim. In the absence of any evidence, we do not find infirmity in the order passed by the lower authorities and the ground raised by the assessee is dismissed.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
This appeal is filed by assessee against the order of the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”]-1, Visakhapatnam in ITA No.331/2014-15/ ITO,W-2, Vzm /2016-17 dated 22.11.2016 for the Assessment Year (A.Y.) 2011-12.
2. The assessee has raised the following grounds of appeal :
1. On the facts and in the circumstances of the case, the order of the learned Commissioner of Income Tax under section 250 of the Income Tax Act, 1961 is erroneous in law and facts of the case.
2. The learned Commissioner of Income Tax erred in law and facts of the case in holding that the order under section 143(3) read with section 147 dated 10.03.2014 is erroneous and prejudicial to the interest of the revenue. On the facts and in the circumstances of the case the Assessing Officer completed the original assessment without considering all the material facts and without giving any opportunity to the appellant to produce the loan creditors and the Commissioner of Income Tax (Appeals-1) ought to have considered the facts and circumstances under which the appellant had to borrow the funds and has not given any relief in respect of the loan creditors of 25,00,000/-.
3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law and facts of the case, that the Capital Investment of Rs.7,97,500/-, inspite of having sufficient evidences for the capital investment made in the concern, he has not given any relief in respect of the same.
4. The Appellant crave leave to add to / alter / substitute / delete /modify all or any of the above grounds.
PRAYER :
The appellant prays for relief in terms of the above grounds.
3. Ground No.1 and 4 are general in nature which does not require specific adjudication.
4. Ground No.2 is related to loan creditors of Rs.25,00,000/-. The Assessing Officer(AO) observed that the assessee has shown unsecured loans of Rs.25,00,000/-, but failed to furnish any documentary evidences in support of identity, credit worthiness and genuineness of the transaction. The claim of unsecured loans by the assessee stood unproved and hence, the AO added the same to the income of assessee, treating the same as income from other sources.
5. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and submitted during the appellate proceedings, that the assessee was not given opportunity to produce the creditors to prove the genuineness of the unsecured loan credits amounting to Rs.25,00,000/- and produced copies of affidavits of loan creditors. The Ld.CIT(A) forwarded the same to the AO to examine the veracity of the claims made by the assessee. The AO submitted in the remand report stating that the copies of affidavits produced by the assessee before the Ld.CIT(A) were verified and the said loan creditors were examined on oath and sworn statements were recorded. On examination, the AO observed that all of them are uneducated and having meagre agricultural land and some of them are having savings bank accounts with no balances. It was observed by the AO that all of them had given unsecured loans totalling to Rs.25,00,000/- to the assessee on a single day without charging any interest, without any collateral security or guarantee appears to be unreasonable and far from reality. The AO further submitted that raising additional ground before the Ld.CIT(A) and producing affidavits from eight unsecured loan creditors appears to be an afterthought. The copy of the remand report was served on the assessee. Contradicting the report of the AO, the assessee filed his comments stating that the creditors are land owners holding 4 to 5 acres with good sources of income. They had given money on a single day to the assessee as the assessee required the money to pay the license fee to Government on a single day and there is nothing wrong in taking loans on a single day. The assessee further submitted during remand proceedings that the creditors could not provide promissory note as normally nobody keeps the cancelled promissory note including a banking company once the loan is cleared and it is not possible for anyone to produce the same after lapse of 4-5 years. Availing agricultural loans are common for farmers to avail the facility of crop insurance and loan waivers in case of calamities. Thus the assessee submitted that all the creditors are genuine and pleaded that the credits may kindly be allowed and the addition may be deleted.
After careful examination of the remand report, written submissions of the assessee and the sworn depositions, the Ld.CIT(A) viewed that the creditors have land holdings of an extent of 4-5 acres. The agricultural income from these land holdings would be sufficient enough only to manage their livelihood and domestic expenditure. The claim of accumulation of agricultural income and savings to make the impugned advances and that too without interest is farfetched and not supported by any sort of evidence. The Ld.CIT(A) further held that advancing the impugned amounts on a single day in all cases is quiet improbable considering the economic capacity and circumstances. Therefore, held that the AO has correctly made the addition and upheld the same.
6. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before the Tribunal. The Ld.AR submitted that the Ld.CIT(A) erred in upholding the addition made by the AO and requested to set aside the order of the Ld.CIT(A) and delete the addition made by the AO.
7. On the other hand, the Ld.DR relied on the order of the Ld.CIT(A) and argued that the Ld.CIT(A) has rightly upheld the addition made by the AO in the absence of documentary evidences in support of identity, credit worthiness and genuineness of the transaction and therefore, requested to uphold the order of the Ld.CIT(A) and dismiss the ground raised by the assessee.
8. We have heard both the parties and perused the material placed on record. The main grievance of the assessee is that the lower authorities have not properly appreciated the evidences placed before the AO as well as the Ld.CIT(A). The assessee filed some details during the first appellate proceedings. Based on that the Ld.CIT(A) sought for remand report. The copies of the affidavits produced by the assessee before the AO were verified and the said loan creditors were examined on oath and sworn statements were recorded. On examination, the AO has categorically mentioned that all of them are uneducated and having meagre agricultural land and some of them are having savings account with no balance. The AO further observed that all of them had given unsecured loans totalling to Rs.25,00,000/- to the assessee on a single day without charging any interest, without any collateral security or guarantee, which appears to be unreasonable and far from reality. Based on this remand report, the Ld.CIT(A) also observed that creditors are having meagre extent of land and the agricultural income of these land holdings would be sufficient only to manage their livelihood and domestic expenditure. The Ld.CIT(A) further held that persons with lower income, advancing such a huge amount in a single day is improbable. The main contention of the assessee is that there is nothing wrong in receiving the amount of Rs.25,00,000/- in a single day and they all are agriculturists and they have accumulated profits from their agricultural holdings. But there is no satisfactory evidence about the credit worthiness of the creditors. We are of the view that the assessee failed to establish about the genuineness of the loan transactions except filing the affidavits. Even before us also the assessee has not filed any satisfactory evidence about the loan transactions. Therefore, we do not find any infirmity in the orders passed by the lower authorities and the ground raised by the assessee is dismissed.
9. Ground No.3 is related to unexplained capital of Rs.7,97,500/-. The AO noted that the assessee has made total investment of Rs.20,33,333/- towards first instalment of license fee and first purchase of liquor. The assessee was asked to explain the source for the said investment of Rs.20,33,333/-, the assessee explained that he is in the business for several years and filing returns of income regularly and the present investment in the business represents his accumulated savings and he has not made any further investment during the year under consideration. After careful consideration of the explanation furnished by the assessee, the Ld.CIT(A) observed that from out of the total payments made during the months of June 2010 and July 2010 of Rs.20,33,333/- towards initial license fee, their first purchase of stock from APBCL before commencement of sale in wine shop, the capital balance shown in balance sheet by the assessee as on 31.03.2011 is Rs.12,87,340/-. The assessee was asked to explain the sources for fresh capital introduced during the financial year of Rs.7,97,500/- with supporting evidences, but the assessee failed to prove the sources for capital contribution by any documentary evidences even though sufficient opportunities were afforded. Thus the AO observed that in the absence of any documentary evidence, it can only be construed that the amount for introduction of fresh capital was met out from unexplained sources made addition under the head ‘income from other sources’ .
10. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) after considering the submissions made by the assessee held that the assessee has failed to explain his source for capital of Rs.7,97,500/-. The claim of agricultural income in the earlier years and their accumulation was not substantiated with any evidence. The assessee did not own any agricultural land and did not produce any evidence for lease of agricultural land and income there from. The Ld.CIT(A) observed that the income from agricultural land held by the assessee’s father was stated to be taken is untenable. Shri Chandaka Rajanna, assessee’s father deposed that the agricultural income earned by him after expenditure was Rs.1.5 lakh per annum and the annual domestic expenditure was 1.2 lakhs. He had also deposed that his son, the assessee worked as a supervisor with a builder and then with HBL upto 2009. The Ld.CIT(A) held that it is evident that the assessee never did any agricultural operation nor earned any agricultural income and the assessee’s claim of income from civil contract business and agricultural income appears to be far from truth. Hence, upheld the addition made by the AO.
11. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal and argued that the Ld.CIT(A) erred in law and facts of the case in upholding the addition made by the AO inspite of providing sufficient evidences for the capital investment made in the concern and not given any relief. Therefore, requested to set aside the order passed by the Ld.CIT(A) and delete the addition made by the AO.
12. On the other hand, the Ld.DR relied on the order passed by the Ld.CIT(A) and requested to uphold the order of the Ld.CIT(A) and dismiss the ground raised by the assessee.
13. We have heard both the parties and perused the material placed on record. The main grievance of the assessee is that the AO made the addition of Rs.7,97,500/- as unexplained capital. However, the Ld.Counsel for the assessee has submitted that the assessee is doing business for several years and filing the returns of income regularly and the present investments in business represent his accumulated savings and he has not made any further investment during the year under consideration. But the Ld.AO has not considered the same and he has categorically mentioned that the capital balance shown in the balance sheet by the assessee as on 31.03.2011 is only Rs.12,87,340/-. For the balance amount of Rs.7,97,500/-, the assessee was not able to produce any source for the capital contribution with any kind of evidence. Therefore, the AO made the addition to the tune of Rs.7,97,500/-. The Ld.CIT(A) upheld the addition made by the AO. Admittedly, the assessee has not placed any evidence regarding this amount even before the Tribunal to substantiate his claim. In the absence of any evidence, we do not find infirmity in the order passed by the lower authorities and the ground raised by the assessee is dismissed.
14. In the result, appeal of the assessee is dismissed
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